Similar, to the CultivateGrowth program at GreenStone, Michigan State University is dedicated to helping farmers through their DEMaND (Developing and Educating Managers and New Decision Makers) series. This series offers new and beginning farmers the opportunity to learn about financial and business strategies that will help them with all aspects of life on the farm. DEMaND offers assistance through articles, bulletins, and webinars.
GreenStone’s senior VP of regional credit, Cindy Birchmeier, has shared her knowledge as an industry expert during the panel discussion with tax preparers and lenders. Cindy and her fellow industry experts covered topics such as farm records, financial statements, financial analysis, and taxes for the farm.
There were multiple topics and questions covered during the webinar, but here are a few Cindy answered for customers:
Q: Do lenders like GreenStone require hedging by farm owners when it comes to exposure for commodity prices and trying to reduce risk?
A: It depends on the profile of the borrower, such as-how strong is the farmer from a balance sheet perspective, solvency standpoint, and history of profit and loss. Is it required? No, but it is a good risk mitigation tool. One thing I can’t iterate enough-as a young, beginning, or small farmer, whether you’re just getting in the industry or been in it for years, surround yourself with a resource pool to help you make those management decisions. Hedging allows your lender to get to know who you work with as professionals, and letting your lender know that can really speed up the process.
Q: When going to a lender, what is the minimum number of years’ worth of records that someone should have?
A: This answer depends on where you are in the stage of a beginning or young farmer. In general, if you haven’t been farming long, we ask for a current balance sheet and 3-5 years of tax returns. If you don’t have that history, we can certainly work with perspective customers that don’t fit that mold. It is a bit more challenging when we don’t have that history and brings up more questions about your business and business plan. The less history and the earlier you are in your farming career, the business plan becomes a more critical part of the decision.
Q: Why is a farm/business that has valuable land assets and a strong balance sheet but has poor cash flow not considered a good risk for a loan?
A: Mathematically, when you’re looking at that scenario for a farm with negative earnings and no cash flow, you could borrow against those assets and add a loan - but then you’d just be adding more debt that you have to pay back. So that’s typically why we say it creates’ a snowball effect, and once you get going it just picks of speed getting bigger and bigger. That can lead you to the extreme of having to sell everything in order to get out of the debt. It starts out small, but it compounds really quickly. Rather than only looking at our bottom line, we make decisions that will help farmers be successful, which means sometimes “no” is the best answer now to help them most in the long run.
This was not Cindy’s first webinar panel during her 21 years of experience in the industry, but it is one that she feels very strongly about supporting.
“This is our lifeblood, Most of us here at GreenStone have direct agribusiness or production experience ourselves and have been young, beginning farmers at one point. Having been there helps us realize how important this segment of farmers is to us,” said Cindy.
Participating in the webinar panel also benefitted Cindy by allowing her to hear first-hand from her customers. “It’s always great to be a panelist, and it’s great to have the ability to hear from our customers and prospects about the real issues they face today. It’s nice to have that ground level setting of questions to make sure we are fitting the needs of our marketplace.”
GreenStone looks forward to helping many young, beginning, and small farmers further their education and experience in the agriculture industry through the CultivateGrowth program. CultivateGrowth provides grants, mentorship opportunities, scholarships, partnerships, and resources for all young, beginning, and small farmers out there. To learn more visit greenstonefcs.com/cultivategrowth.
To watch the recorded tax preparers and lenders panel webinar with Cindy, and to hear the discussion featuring more questions and answers like the ones included here, visit Industry Panel Discussion with Tax Preparers and Lenders - Farm Management (msu.edu)
