Change is hard. Most of us are hardwired to maintain relationships as long as possible. But there are times when we have to make a change. The reasons may vary, but when it is time to go, it is time to go.
Changing lenders is not easy, but it is not impossible. Banking relationships echo every other human relationship and, as a result, there are things you can do that will help you make a successful transition to a new lender.
Your goal should be to shorten the “get to know you” phase as much as possible. Bankers get busy during the late winter and early spring, so helping them get to a decision point as quickly as possible about your request is in your best interest. By presenting a potential lender with complete and detailed information up-front, it will make the transition smoother, faster and less turbulent. Your goal should be to identify a new lender, execute your plan to make the change to the new lender and then get back to what is important – operating your farm to its highest potential.
Get to know who the agricultural lenders are in your area. You don’t want the first time meeting a new banker and having the “get to know you” discussions during the crunch time prior to planting. Knowing other banks and bankers ahead of time makes you a better informed user of banking services. Ask your friends and neighbors for recommendations. Farm shows are excellent places to meet new lenders; many lenders operate booths at farm shows, and they are anxious to meet new, potential customers.
Pay attention to those institutions that sponsor farmer education seminars. By sponsoring educational events for their existing customers and for potential customers, they are letting the community know they care about farmers in their service area and are interested in expanding their agricultural lending programs.
For the first meeting with a prospective banker, you want to come prepared. First impressions are very significant when starting a new business relationship. Don’t make the search for basic financial information about your business be a treasure hunt. One of the criteria your request will be judged on is how complete and professional your financial statements are and how well you understand them.
All banks run credit bureau reports (CBRs) on new account applications that indicate how well you have managed your consumer debt obligations. If you have blemishes on this report, it could disqualify you for commercial credit right out of the starting gate, or it could result in you paying a higher rate of interest. Take a look at your CBR and clear up any unresolved issues before applying to the new bank.
Every bank has different criteria they use when considering a new loan request, but in general you can expect to be asked to provide the following:
- Three years of signed tax returns – Include all schedules. There is a lot more happening in your tax return than just Schedule F. This could include your K-1 statements if you receive income from outside entities. If you don’t provide all of your tax return, it could give the impression something is being hidden and that could delay your request.
- Three years of signed balance sheets – If the balance sheets are dated 12/31, the new lender can correlate them to your tax returns. Make sure to include your current debt schedules. Hint: Always request a copy of any balance sheet you give to a lender; this way, you will always have relatively current information on hand. This step will save a lot of time should you decide to move your business to a new lender.
- Crop insurance coverage summaries – This information helps prove historical yields and gives the location of the farms you operate. Provide information about the typical policy you take and the level of coverage you select.
- Milk production/DHIA reports for dairy
- Marketing contracts for grain or livestock – Include a brief description of your marketing philosophies and goals.
- Current lists of stored crops, livestock and machinery with your estimated value of each
- A short written narrative about the farm, your family, key employees, acres farmed, crops grown, goals and other items is an extremely helpful document to include with your financials. Be sure to include what you want to borrow money for, how much you need to borrow and what collateral you are offering to secure the loan.
If you had a bad year in the past or an event that hurt or changed your operation, be up-front and let the new lender know what happened. You want to be as transparent as possible about your operation in order to build a level of trust with your prospective new lender. Nothing sours a lender faster than having them dig into your financials only to find issues that were overlooked or that appear to have been hidden. It opens questions about what else may be out there to find.
Taking the time to put together complete information up-front helps demonstrate your professionalism as a business manager and will help get your credit request considered ahead of others. Change can be hard, but by following these simple steps, you will get your new banking relationship started on the right foot.
