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Lenders’ Wishlist for 2021 and Beyond

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Agricultural lenders want timely and transparent financial statements before considering anything.

An open forum chat on a webcast with over 400 agricultural lenders revealed perspectives from the other side of the desk. I asked, “What would be on your wish list when working with agriculture producers in 2021 and beyond?

First on the wish list are timely and transparent financial statements. More commas and zeros on producers’ financial statements are presenting additional risk in the lending decision and overall monitoring. Receiving completed year-end balance sheets with detailed schedules by January 15 is ideal in the eyes of lenders.

High on the lenders’ wish list is a producer’s ability to develop a monthly or quarterly cash flow statement. The key word in this statement is the producer, not the lender. This initiative by the producer shows that they have thought about a game plan for production, marketing, and operational plans. In order to develop a cash flow, the producer must also consider debt servicing ability and estimated operating loan needs along with family living expenses, withdrawals, and income taxes.

As one lender stated, conducting a financial statement sensitivity test by lowering or increasing yields, market price assumptions, and cost estimates would be “icing on the cake.” Sensitivity testing is followed by developing a plan for marketing and risk management, which also includes a plan for execution and monitoring. Of course, the execution of risk management and marketing plans has been a lower priority for many producers as a result of 2020 price increases in some commodities. Many producers are complaining that they left money on the table.

Next on the wish list is the development of accrual adjusted income statements, not just Schedule F tax statements. Revenue and cost adjustments to reduce taxes along with depreciation methods often produce Schedule F results with little confidence of where the business stands financially. Using beginning and ending balance sheets to make the big five adjustments to inventories, receivables, payables, prepaid expenses, and accrued expenses can provide a more accurate depiction of business performance and measurement to benchmarks.

Knowing the cost of production and breakeven trends of the business and peer comparisons is the management mindset for the 21st century. These baselines are critical in developing a marketing and risk management plan.

Personal financial living budgets are critical as more family members and partners are living out of their businesses. Budgets that separate business and personal expenses can be especially useful when conducting financial, economic, or operational benchmarking.

To complete the list, written business, family, and personal goals were mentioned as an effective method of communications not only with the lenders, but people within the business.

Well, that is a lender’s wish list when working with agriculture producers. How do you stack up?

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