If you have not noticed, there is a tremendous transition occurring at agricultural lenders, whether it is Farm Credit, banks, Farm Service Agency (FSA), or others who provide financial products and services. In my position as an educator, I am front and center teaching schools, conferences, and seminars to the ‘new kids on the block’ online and in-person. A new agriculture lender recently asked me a basic, but important question, “How do you determine who is a good borrower?” Let's dig deeper into some of the defining characteristics based on decades of working in this field.
Ownership of financials
One strong characteristic observed in the agriculture industry is that good borrowers take ownership and accountability of their finances. Each business needs someone to keep the organization and operation transparent and accountable. For many businesses, this individual may be a spouse or business partner. Larger operations may employ a chief financial officer (CFO). A danger is when the owner and the manager only prepare “drive by” financials once per year for tax reasons. Good borrowers use their financial statements to make prudent management decisions throughout the year.
I cannot stress the importance of good character, which can be demonstrated in many ways. Character is doing what you say you are going to do in a timely manner. Character is being transparent when preparing financial statements, such as listing all assets and liabilities, so that there are no surprises to the lender or other stakeholders. Another example of strong character is when producers who are invited to educational seminars that are sponsored by a lender or other agribusinesses attend, follow through, and also integrate some of the new ideas and principles illustrated during the seminar.
Over the years, a strong borrower is often slightly more conservative than peers regarding debt levels. If they are in a growth mode and utilizing debt, they will maintain strong levels of working capital for adversity and opportunity.
Good borrowers will often share their plans and goals with others for accountability. A positive action of the younger generation is that they will often develop a business plan including goals, financial statements, and operational marketing plans.
To all of the new agriculture lenders out there, the relationship between a lender and borrower is more than just a credit score and a checklist of financials where, in some cases, the brains are checked at the door. It is understanding that successfully paying back borrowed capital through economic cycles takes a skill set, sacrifice, and a management mindset in both business and personal life.
Source: David Kohl, which is solely responsible for the information provided and is wholly owned by the source. Informa Business Media and all its subsidiaries are not responsible for any of the content contained in this information asset.