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Corn+Soybean Digest

Shopping For Credit

Does loyalty pay when it comes to banks, or are you better off hopping from one lender to the next in search of lower interest rates?

There's no easy answer, although financial experts say it doesn't hurt, from time to time, to see what other banks might be offering in the way of interest rates and service.

What experts do seem to agree on, however, is that it doesn't make sense to jump ship solely on the basis of a slightly lower interest rate. Instead, they suggest you keep many factors in mind when deciding whether or not to stay with a bank.

Many lenders, especially old-fashioned agricultural banks, have stuck with farmers through good times or bad. Experts say farmers should ask themselves whether a new lender would do the same, or might pull the plug on further loans during droughts, crop failures or periods of low commodity prices.

“Ask how much do I value that long-term relationship with someone who understands my operation?” says Paul Ellinger, associate professor of agricultural finance at the University of Illinois. “And ask, what's that relationship worth if times get hard?”

Farmers also need to ask whether they really are saving any money after factoring in loan origination fees that are typically assessed on land loans. So first calculate whether these fees will offset the savings from lower rates, says Ellinger.

There are times when it makes sense to shop. Bank consolidation, changes in ownership and shifts in loan policies can turn a bank from a trusted ally into one that may be less than ideal for farming.

“You could be at an institution where you once had a good relationship but the service has deteriorated and the loan rate isn't competitive,” says Peter Barry, professor of agricultural finance at the University of Illinois. “Your old loan officer might be gone, or the loan officer might be hamstrung so he doesn't have adequate lending capacity or can't make a loan in an emergency.”

If you do shop for credit, be prepared to make an organized presentation with a firm grasp of your farm's books.

“If you've got your books in order, you can get a better rate,” says Robert Ratliff, head of, an Internet service that helps farmers with financial planning.

“If a person comes in haphazardly and doesn't know how much money he needs, when he needs it and what his loan security will be, he's at risk of not getting a loan at all,” says Ratliff. “If he does get a loan, it will be at the highest rate.”

He adds, “The trick is to give the appearance that you're in control of your business. And you can't fake it. If they ask what your debt-to-asset ratio is, you better be able to tell them. And you better be able to tell them how you arrived at the figure so they'll know your number is accurate.”

On the other hand, if you're happy with your current lender, there is one more option. Ask for better credit terms.

The lender may say no. In that case, you've lost nothing. But the loan market is highly competitive, and some banks may come through with lower rates rather than risk the loss of business. In that case, says Ellinger, “you save on interest and preserve the relationship.”

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