Having farmed with my family in the past, I understand that sometimes situations may arise that may require you to have difficult conversations with your financial lender regarding cash flow and payments. It’s impossible to predict the future, and tough times are likely to happen at some point. During rough patches, farmers should work closely with their financial lenders to navigate financial challenges and find appropriate solutions.
As lenders, we work with customers to ease the burden when times are tough. However, the customer also must be involved. It’s important for customers to be prepared with a plan and detailed information to help us find the right solution for each unique situation.
Plan and Communicate: The most important component of working with your lender through tough times is to have open lines of communication. Maintain transparent and honest communication with your lender and inform them promptly if you anticipate financial difficulties or if there are any changes in your farming operation. When you want to communicate with your lender and think you have a problem, the earlier you reach out to them, the better. Waiting for things to worsen will make the condition even more challenging to work through.
Next, have a potential plan in mind for how to navigate the situation. Be upfront with what you think the issue is going to be and come with a plan as a starting point for you and your lender. It’s best to come prepared with a game plan. This may involve adjusting repayment schedules, restructuring loans or exploring other financial options.
Options: Throughout my 14 years in lending, I’ve witnessed many different scenarios. In some instances, it’s an idea the customer brings to the table that ultimately is the best solution for their situation. If there’s a short-term cash flow issue, perhaps exploring interest-only payments for a brief period could be a better option than rebalancing their loans.
In addition to cash flow, timing is critical in agriculture lending. You may have the cash flow at a future time, such as within the next couple of months, but you’re foreseeing a possibility of not being able to make the payment right now and need an extension. When communicating with your lender, having your projections ready can help determine the best options, such as adjusting your loan payment schedule to align with when you have cash coming in from selling your commodity.
When finding a solution with your lender, be prepared to provide documentation. Know what your cash flow and financial plan is over the next six months to a year. Be prepared to provide documents that support your financial situation, such as cash flow projections, production records and market analysis. This will help your lender better understand your circumstances and make informed decisions.
Lastly, be sure to monitor progress. Stay actively engaged in monitoring the progress of your financial plan, and regularly communicate with your lender to provide updates on your situation. Be prepared to adjust your plan as needed based on changing circumstances.
Building a positive relationship with your lender is essential to overcoming challenges and working to find solutions. It may be worthwhile to schedule biannual or quarterly calls with your lender to discuss your current situation and stay on top of any upcoming challenges that may arise. By working collaboratively with your financial lender and taking proactive steps to address financial challenges, farmers can increase their chances of successfully navigating tough times and securing the support they need to sustain their operations.
This blog was originally published in Michigan Farm News.
