Perhaps your dad kept his expenses and receipts in a shoebox. When it was time to do taxes, he would dump the shoebox contents on the dining room table, and he and your mother would “do the books.” At the other extreme, maybe today you keep every record on your computer, and expenses and income are filed in the system the day they occur.
“We’ve seen a wide range of record-keeping practices when clients come for loans,” says Brenda Sermersheim, an ag loan officer with German American Bank in Jasper, Ind. She and her husband, Roger, are no-till farmers and hog producers near St. Anthony.
“You don’t need everything on computer in a spreadsheet for us,” she continues. “Many people find it makes things simpler. What we care about is that you can provide us the information we need to make accurate determinations on loans.”
What lenders need
At work, Sermersheim puts on her ag lender’s cap. This year, with the pandemic underway, her home also became her workplace for several months. Here are tips she offers to make interactions with lenders go more smoothly. Her recommendations are based on what her bank requires:
Tax records. Generally, lenders want to see your three most current tax income forms.
“We use these to help do accrual analysis, so we can see how your operation performs on an annual basis,” Sermersheim says.
Balance sheets. Sermersheim also wants to see balance sheets from the past three years. A balance sheet on a farm operation is a snapshot in time. It reflects financial health of the business.
“It takes both tax returns and year-end balance sheets to do an accrual analysis to determine profitability,” she explains.
Cash flow projections. Perhaps you do crop budgets or enterprise analysis on livestock operations, projecting what you expect in returns for the year. Ag lenders need some form of documentation that will indicate how you will generate cash flow to repay the loan, Sermersheim says.
Crop budgeting usually requires estimating yield and price. If you estimated prices for corn and soybeans in March this year, your projections may be skewed, since prices dropped, and margins tightened after that point.
“We just like you to keep us informed,” she says. “Obviously, I understand about prices and weather. But it’s helpful to know how it may affect cash flow later.”
No surprises. No lender wants surprises, Sermersheim says. That’s why it’s good policy to check with a lender before you make a major purchase, such as trading a planter or tractor, even if you have a line of credit.
Good relationships. Perhaps the most important thing you can do is develop good lines of communication and a sound working relationship with your lender.
“I usually like to go to the farm at some point — just to see how people are doing, not to check up on them,” Sermersheim notes. “One customer this spring had to get his paperwork through the mail due to COVID-19, but he made me promise to come to the farm next time. He likes that personal touch.”