Dollars and Sense: Working through difficult times with your lender
Ian McGonigal, Senior VP of Regional Sales, GreenStone Farm Credit Services
Farmer in office setting talking on the phone

It is no secret the extended downturn in the commodity markets, across all sectors, is taking a toll on farmers working to manage through the current challenges. For some, tough decisions like exiting a multi-generational family business before all the equity is gone are being made.

For others, all options have been exhausted and are facing financial hardships. In all cases, including those not facing financial difficulties, farmers should develop the best course of action when working through financial challenges with their lender.

If the farm is working with a Farm Credit association, like GreenStone, there are established processes customers can rely on which may not be offered by a commercial bank. Most notably, Farm Credit associations have a defined process in place outlining communication and options to be provided to the customer.

Customers of the Farm Credit System can expect:

To know the current effective rate of interest on your loan by the date it closes
To be informed that you are required to purchase at-risk stock in your FCS institution
To receive copies of all the documents you have signed by the time the loan closes
To be informed promptly as to whether your loan application has been accepted, reduced, or denied
To be informed of your right to request restructuring for your loan if you cannot meet current payments
To obtain a credit committee review of a denial or reduction of a loan request and a denial of a restructuring request
To have the first refusal when your FCS institution decides to sell any agricultural property it has acquired from you

At GreenStone, we take these requirements one step further and have initiated a “no surprise” rule, meaning all customers receive a personal call or visit as soon as the loan officer sees areas of concern.

Over the past four years, we have worked with hundreds of customers to reevaluate their current financial situation and provide accommodations to help them sustain their business. Based on our experiences we offer the following tips:

Develop a trusted lender relationship: In order to effectively work with customers who may be going through stressful times, there must be a trust relationship between the lender and the borrower. Establishing a trusted relationship requires honest, forthright and transparent conversations. At GreenStone, we build teams around each member so we can provide the best match for all our customers.

Seek help early: If you begin having difficulty meeting routine obligations or are exhausting your working capital, it is important to contact your lender to begin working on a plan and evaluate options. Many times there are tools available to help free up working capital by rebalancing existing loans.

Keep good financial records: In order to get a full and complete picture of the financial position, farmers must have high-quality, accurate financial records. These records should be accrual income and expense records, rather than just tax statements. Financial records should be used on a monthly basis to manage the business, not just for annual tax reporting.

Be transparent with your lender: In order to offer effective solutions, all information needs to be shared that impacts the financial position of the business. Many times, information withheld is critical to a complete understanding of the financial situation and eventually conflicts with your lender’s ability to help.

Keep an open mind: Lenders can offer a number of ways to help businesses, but it may involve making changes to assets or production methods. Reviewing farm records to determine the productivity of the assets in relation to the overall business, can assist you in making the right business decisions. Lenders should never attempt to manage your farm for you, only offer suggestions on how you can capture more working capital and rebalance debt.

Develop a plan: Using your past records and production levels, structuring a plan with realistic production and income goals will help you track progress and set goals for the future. Using a lender with deep industry knowledge and experience with a variety of agricultural enterprises can help you design plans that reflect current industry benchmarks and expectations.

Limit unsecured debt: Relying on credit cards and other unsecured debt can quickly become a long-term challenge. High levels of unsecured debt can hinder your ability to obtain other financing if needed. If using unsecured debt, be sure to have a repayment plan in place.

Build working capital: “Cash is king.” If cash was used for major purchases, such as equipment, you may be able to convert some of the assets to a debt position to provide working capital.Rebalancing debt between short term and long-term financing can also help to generate more working capital.

Regardless of the customer or situation, there is no one plan that will fit every situation. Our priority when working with our customers is always to develop the best approach for the customer and all 24,000 GreenStone members.

If you are facing tough financial challenges, we encourage you to reach out to your lender to begin implementing the right solutions for your situation.

Originally printed in the Michigan Farm News





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