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Manager’s notebook: Tips for meeting with your lender

Start with a realistic crop budget using Actual Production History.

With crop prices down and expected ’19 input costs steady or higher, I’m worried what my banker will say about my operating loan this winter. I’ve heard some lenders are giving certain tenants limits on what they can pay for cash rents. How should I approach those meetings? — J.M., Kansas

Key thoughts as you meet with your lender:

  • You’ll feel more confident if you have a solid, realistic crop budget in hand, and know it well.
  • Though you will want to dwell on your efforts to cut expenses, budget yields and prices will justifiably be your banker’s main concern.
  • Actual Production History must be the main input for yield projections, despite the hot Midwest production of the past two years.
  • A well-written marketing plan must support your budgeted prices.
  • Tech yield enhancements like we are witnessing in soybeans can be incorporated into projections, but crop insurance levels also must be noted.
  • Any defense for a high cash rent level starts with your working capital position. Know how your rent levels compare to the rest of the area. If you are paying in the upper third, you’re going to have to be in the lower third in other major cost categories, like equipment.

Be ready to talk about covenants, a condition in a commercial loan that requires the borrower to fulfill certain conditions or that forbids the borrower from undertaking certain actions. For example, well-respected central Iowa banks have implemented maximum cash rent restrictions the past two years. That likely won’t happen to you if you’ve got a solid history of repayment and aren’t paying the highest rent.

It would probably be prudent to shop other banks right now, ahead of time, to give yourself options. Then you’ll enter the meeting with your current lender knowing exactly where your level of bargaining power lies.

Jerry and Jason Moss operate Moss Family Farms Inc.


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