Keeping open communication with your lender is one of the keys to navigating fluctuating market cycles. A downturn in commodity markets often creates challenges for many farmers across the country. It is pivotal to keep an open line of communication with your lender so that in the event of a challenging time, you and your lender can work together towards a mutually agreed upon solution.
GreenStone has over a century’s worth of experience helping our members work through a wide variety of challenges they may face. We pride ourselves in partnering with our members and maintaining healthy, long-standing relationships with our borrowers. When challenges arise, honest and transparent two-way conversations are critical to determine the right course of action. We encourage you to reach out to your lender at the first sign of any financial headwinds you anticipate.
Due to the uniqueness of each borrower, GreenStone typically discusses and evaluates every situation on a case-by-case basis. Based on our experiences, below are some tips to consider ensuring productive and healthy communication with your lender and the best solutions and outcome:
- Develop a trusted lender relationship: Trust must exist both ways, between the customer and the lender. Establishing a trusted relationship requires honest, forthright and transparent conversations. At GreenStone, we build teams around each borrower so we can provide the best solutions and experience for all our customers.
- Seek help early: If you feel you are not going to be able to meet an upcoming payment, or your working capital position is strained, it is important to reach out early. The earlier a problem is detected and diagnosed; the sooner the right solution can be implemented to solve the issue at hand.
- Be transparent with your lender: All information needs to be shared that impacts your financial position. Withholding details critical to your financial position, such as a change in business structure, disagreements between partners or even personal situations that may stress the financial position of the business are all important for developing the right solution.
- Keep good financial records: Maintaining high quality financial statements and records is critical regardless of your financial position. Being able to identify trends in these statements is paramount for your lender to be able to assess your situation and provide quality feedback. These should include a beginning and ending balance sheet with either tax returns or a high-quality profit and loss statement. For example, if you file a cash basis fiscal tax return in 2024, your lender needs a 12/31/2023 and 12/31/2024 balance sheet to understand the accrual earnings for that period. Your balance sheet needs to include accurate details for all assets and liabilities. An accurate and detailed income projection is also critical to determine the right course of action in the future. Crop yield history and other production records are also beneficial to include in your financial information.
- Develop a plan: An important part of your plan includes your goal for the outcome. Use your historical yield data and a marketing target. However, be realistic with yourself. If your 3-year average corn yield is 220 bushels/acre, don’t project 230 bushels/acre, especially if you are also projecting cost cutting in your input program. This is unfair to you and doesn’t give you a clear outlook on your potential to work out of the situation. If your plan includes liquidation of assets, research the true market value of that asset. Overly optimistic plans can lead to a worse situation later.
- Limit unsecured debt: Relying on credit cards and other unsecured debt can quickly escalate a short-term problem into an unreconcilable long-term problem. It can also hinder your ability to obtain other financing. If you need to use unsecured debt, be sure to have a repayment plan in place beforehand.
- Keep an open mind: Often your plan you come to the table with needs adjustments to be feasible to both parties. An experienced lender will likely have practice in similar situations in the past. It is important to remain open to ideas through the process. An experienced lender likely has worked through a similar situation. Our role as a trusted advisor is to “facilitate” a high-quality conversation identifying financial options that are acceptable to both parties. Establishing trust in the lender – customer relationship will also pave the way for the best outcomes.
- Build working capital: We’ve all heard the saying: “cash is king.” However, using cash to make capital expenditures can drain working capital in some cases. This should be kept in mind as you purchase assets. In some cases, you can improve your working capital position by rebalancing your debt stack, moving short-term liabilities down the balance sheet to an amortization that cash flows ideally.
Regardless of the situation, there is no “one size fits all” plan that fits every situation. GreenStone’s priority when working with our members is to develop the approach best tailored to your unique situation.
We encourage you to always maintain an open line of communication with your lender to create an ongoing conversation around implementing the right solutions for your farm.
This article was originally published in Michigan Farm News.
