November 22, 2022
Higher interest rates are now a fact of life in both business and personal finances. How high interest rates will go or how long they will last is anyone's guess. Does your agriculture lender add value beyond interest rates? This is an intriguing question in light of the tremendous transition occurring with agricultural lenders. The new “kids” on the block are an interesting mix. Some are fresh out of two-year, four-year, and master’s degree programs. Other new agricultural lenders are shifting careers. The transition can be challenging if institutional memory is not there to mentor and coach these new lenders. Let’s take a look at some of the desirable lender attributes beyond interest rates.
Does your lender have knowledge of your business, industry, and you as an individual? Are they a good listener and not glued to their technology? This is becoming more important with the rapidly changing technology and shifts in the marketplace. Many beginning producers are emerging entrepreneurs that do not fit the traditional model of financing that is often equity or collateral-oriented, with farmland as a base.
Can the lender deliver on credit on a timely basis? Labor shortages in the workforce and lack of support staff can result in backups in the loan closing process.
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If the lender requests financial data, are they willing to go the extra mile and conduct peer benchmarking using key financial ratios that you can use to better manage your business? A balance sheet, income statement, and cash flow can tell many stories about past, current, and future performance.
Does your lender develop a loan structure with interest rates and terms that align with your business needs? Sometimes this requires lenders to work with the competition or other institutions such as Farmer Mac and Farm Service Agency (FSA) to utilize the best mix of programs.
More lenders are adding value by either sponsoring or co-sponsoring timely educational programs. These programs could include subject matter such as marketing, finance, risk management, and other important topics that are related to production, the environment, and other emerging challenges such as business transition management.
From a personal standpoint, does the lender make an investment in future generations? This could include 4-H, FFA, MANRRS, and other young farmer programs.
Often the culture of financial institutions is instrumental in developing and nurturing these value-added components. This is the difference between a transactional and a relationship-based lender.
The other day, a lady in a seminar mentioned that she has purchased numerous farms in recent years with financing from a lender she has never seen in person. However, this lender was able to accomplish many of the aforementioned characteristics via technology. It is a new world out there!
Source: David Kohl, who is solely responsible for the information provided and is wholly owned by the source. Informa Business Media and all its subsidiaries are not responsible for any of the content contained in this information asset.
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