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Lender and borrower side-by-side in farm business

There are responsibilities on both sides to providing value in the side-by-side relationships.

David Kohl

February 1, 2024

2 Min Read
Getty Images/William Potter

One of the refreshing notes I am observing on the speaking circuit is that lenders and borrowers are both involved in business and financial education. Whether it is a young farmer and rancher event or a lender or agribusiness sponsored program, the engagement and interaction provide a value-added forum for connection to foster side-by-side relationships.

Some lenders indicate that these educational programs are a much better value than advertising and promotion dollars. This is tied to the concept of edu-marketing, which means that you educate and market at the same time. Others find that with the transition phase in agriculture in full gear, these programs are a forum for new individuals, from both the lender and the producer point of view, to establish and align relationships. With this being said, there are responsibilities on both sides to providing value in the side-by-side relationships.

The borrower

The borrower must follow through on the educational commitments and be an active participant. Up-to-date balance sheets with inventory and liability schedules are a requirement.

The borrower should also complete a projected cash flow more frequently than just on an annual basis. In today's volatile economic world, financial sensitivity testing using best, average, and worst-case scenarios in production, costs, prices, and interest rates are a must.

The borrower should have written, articulated goals and completed the business IQ assessment, which I have illustrated before in this column. Each of these items can fulfill expectations and move one to an elevated management status.

The lender

It is also the responsibility of the lender to monitor financials and provide occasional feedback. This can include strengths and areas of improvement as they often observe many operations. More lenders are providing financial benchmarking of key performance indicators (KPIs) but staying out of the weeds of overkill via specific enterprises that can overwhelm the borrower.

The lender is sometimes part of a formal or informal advisory team that meets with the borrower and provides input and alternatives. However, lenders in this position need to be careful about specific recommendations that could lead to possible lender liability and lawsuits.

The lender and the sponsoring organizations often view the time and money used to fund these educational programs as investments, rather than a cost. They believe that these educational programs are an investment in building better businesses for the long-term.

One positive aspect of agriculture are the side-by-side relationships which are strategically improving the overall agriculture industry.

About the Author(s)

David Kohl

Contributing Writer, Corn+Soybean Digest

Dr. Dave Kohl is an academic Hall of Famer in the College of Agriculture at Virginia Tech, Blacksburg, Va. Dr. Kohl has keen insight into the agriculture industry gained through extensive travel, research, and involvement in ag businesses. He has traveled over 10 million miles; conducted more than 7,000 presentations; and published more than 2,500 articles in his career. Dr. Kohl’s wisdom and engagement with all levels of the industry provide a unique perspective into future trends.

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