
The winds of change are occurring with agricultural lenders as the agriculture industry faces a down economic cycle. Whether it is Farm Credit associations, commercial banks, or Farm Service Agency (FSA), a major transition from the vintage lenders to the “new kids on the block" is taking place. This will be the first major downturn in the agriculture economy faced by many loan officers, credit analysts, reviewers, CEOs, management teams, and, in some cases, the board of directors.
This brings us to a very important point and perspective that agriculture producers must consider in their working relationships with agricultural lenders. Through this economic cycle, many changes are occurring in loan officer, senior management, and credit analyst positions and in agricultural lending institutions’ objectives and policies. While this is not the case across the board, these changes can affect working relationships with customers. Mergers and acquisitions only accelerate these changes as organizations reshuffle the deck and their objectives.
Relationship lending
Many lending institutions place a premium on relationship lending. Sudden changes in the strategic initiatives can impact relationships that have taken time to nurture and develop. These changes can impact the trust levels between individuals not only in institutions, but with the accounts that they serve.
Conservative lending
Changes in policies, processes, or procedures can be perceived in an adverse way if the communication is not properly delivered. For example, expectations for changes in advance rates, the amount institutions are willing to lend on land, buildings, machinery, equipment, livestock, and receivables, often become much more conservative in a down cycle. If these changes are not appropriately communicated, they can create a tremendous amount of tension.
Loan process
The quest for more financial information from the balance sheets, cash flows, and accrual adjusted income statements often occurs in this part of the down economic cycle. How the information is conveyed from the relationship officer to the credit analyst and finally to the review committee is critical in the loan approval process and the timing of capital needs.
Business needs
During a credit tightening cycle, the lender must work alongside the producer to gain a better grasp of the individual producer's business and business needs along with communicating ways to mitigate risk and improve overall business management.
The winds of change are occurring that will not only be a disruptor, but an evolutionary accelerator to an individual business and the overall agriculture industry. Not only do we need to assess the business IQ of producers, but the lender IQ as well. Remember, borrowing and lending is a two-way street and can be a win-win situation.
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