What are lenders looking for?

Written by Amanda Douridas, OSU Extension Champaign County

During my farm management school in December in Urbana, I invited a panel of ag lenders to answer questions about what they are looking for in a potential client and what can clients do to build stronger relationships with their lenders. The panelists were Greg Kinght with Civista Bank in Urbana, Paul Lensman with Agri Business Finance in St. Paris and Rudi Perry with Farm Credit Mid-America. Here are the questions asked and a summary of their responses.

Q: What characteristics do you look for in a potential client?
A: Character is a big part of the lending decision. Is the person honest? Trustworthy? Do they have the responsibility, knowledge and experience to be successful?

Q: How does the current economic outlook for agriculture affect the lending decision?
A: The big questions is: what is the producer doing to protect themselves? We don’t see crop prices increasing anytime soon. Having a contingency plan is a great way to show us that they are planning for future and not taking each day as it comes.

Q: What about debt re-structuring? What does that look like and what are the options?
A: It is very situational dependent. We are proponents of constructive credit but sometimes it does not make sense. Replenishing working capital through selling assets or spreading debt out over several years can also be an answer. FSA guarantee loans may be an option or restructuring loans on longer terms can work for some farm operations.

Q: What land value, dollar per acre, are you willing to finance?
A: We mostly prefer not to put a dollar figure on land value and look more at loan to value. That figure has been reduced somewhat from 5 years ago and the borrower will likely have to make a larger down payment or add more equity than in recent years. Overall land will be a good long-term investment.

Q: What is your first impression of the new tax law and how it might impact agriculture?
A: It likely will not have an effect on lending but there is a concern about the overall increase in the deficit. Legislature could look to make the deficit up in the Farm Bill by cutting farm programs.

Q: Do you have programs for young and/or beginning farmers?
A: Farm Credit has recently created a Young and Beginning Farmer program. Some benefits include up to 85% loan to value and not quite 50% equity for loans. It also has a 2-day farm finance educational program. Lenders also work with FSA guarantees and are willing to work with new farmers.

Q: What information do you need from niche or specialty crop producers?
A: We want to make sure the producer has a very good understanding of producing and marketing that product. If the farmer knows what they are doing and can back it up with data, we will definitely consider it for a loan. The farmer just needs to be prepared to educate their lender. If the equipment being used as collateral is very specialized, it will likely have a lower loan to value ratio because it is a lot harder to move that equipment. Diversification can be a good thing!

Q: How do you determine the operating line of credit for a farm?
A: We want the customer to establish that number based on their farm and cash flow.

Q: How do you determine the value of collateral?
A: We use several different sources such as local sales, online equipment listings such as tractorhouse.com, Hot Line Farm Equipment Guide and even some outside appraisers. When using real estate as collateral, we always use an appraiser.

Q: What about if I’m putting it on my balance sheet?
A: Farmers can do it as cost less depreciation but most lenders prefer the market value using recent sales. We just ask that the farmer is consistent from year to year and if changes are made, be prepared to tell the lender why the value was increased or decreased.

Q: Where do you see farmers making errors on their balance sheets?
A: Missing pre-paid expenses on the assets side and missing accounts payable to go with them. Credit card debit is also often left off. Remember that long term loans have a portion that is due each year and that portion of the loan needs to be moved up to current liabilities. Accrued interest is another that can be missed.

Sole proprietorships have assets and liabilities for non-farm assets that need to be reported on the balance sheet or create a second balance sheet for the non-farm portion. We start looking into everything after meeting with the borrower. It is better for the borrower to bring up everything rather than us find it in our research afterwards.

It is important to the lender to know what the ownership structure is: LLC, sole proprietorship, corporation, etc. If you are making some risk separation business decisions using these entities, it can help us make a lending decision in your favor.

Q: How often would you like customers to communicate with you?
A: It depends on the situation but definitely when major life events occur and it is always better to share something with your lender before we hear it from someone else. It is also nice to hear from the farmer when they are considering purchasing a new piece of equipment, making changes to planned crops, or what their marketing plan might be.

Q: If a farmer participates in the FINPACK program, does that add value?
A: We are impressed when someone uses the program. It shows that they have attention to detail and discipline in record keeping. The benchmarking piece also allows them to discuss with us areas where they excel and where they would like to make improvements.

Q: What should a client bring to a meeting?
A:
• Entity paperwork such as articles of incorporation, bylaws, partnership operating agreement, LLC setup, etc.
• 3 years of tax returns, these are not always needed but if they are, we have them and don’t need to contact you to follow-up.
• A current balance sheet is a must and multiple year-end balance sheets are even better.
• We don’t always need to see your insurance information upfront but we may need it so have it ready.
• For new or expanding enterprises, we need to see a business plan.
• Cost of production and cash flow or budgets

They summed up the panel by asking the audience what they can do for the farmers. Lenders want to make loans so how can they serve farmers better? There are very few problems you can’t work through with your lender if you have a good relationship.

Greg Knight can be reached at 937-653-1165 or gpknight@civistabank.com
Paul Lensman can be reached at 937-663-0186 or pelensman@agribusinessfinance.net
Rudi Perry a regional vice president for Farm Credit and recommends contacting your local office to speak with a lender.

Annie’s Project East Retreat Agenda

Registration will remain open for the Annie’s Project East Retreat until next Wednesday, January 24. Please register online: Annie’s Project East Retreat Registration  This retreat will be from Friday, January 26 at 4:00 pm until Sunday, January 28 at 11:00 am at the Salt Fork State Park Lodge and Conference Center.

 

Empowering Farm Women through Agriculture Risk Management

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Female farmers, whether farming on their own or in a partnership, realize the importance of the business side of farming. Annie’s Project provides education and a support network to enhance business skills of women involved in all aspects of agriculture.

Two weekend retreats are being offered in Ohio this winter. Women will receive training in five areas of agricultural risk management: financial, marketing, production, legal, and human resources. Most importantly women are able to network and develop relationships with other women in agriculture.

Past participants have had this to say about the program:

“I changed my mind about how to approach communication with my in-laws as business partners.”

“I have gained tools to help improve management of our farm and insight on how to communicate the resources to other members of the farm.”

“I appreciated getting to meet others with a shared interest.”

“I encourage any woman to attend one of these great programs!”

The first retreat will be held Jan 26-28 at Salt Fork State Park Lodge and Conference Center, 14755 Cadiz Road, Lore City, OH 43755. The participant fee is $105 per person, which includes all materials and meals. Lodging is $99 per room per night with up to four people per room. Registration deadline is November 17. For questions about this program, please contact Emily Adams at adams.661@osu.edu or 740-622-2265.

The second retreat will be Feb 2-4 at Western Buckeye Christian Camp, 5455 Roeth Rd, Houston, OH 45333. The cost is $95 per person and includes all lodging, materials and meals. Please bring bedding and towels. The registration deadline is January 19. For questions about this retreat, please contact Amanda Douridas at Douridas.9@osu.edu or 937-484-1526.

Registration for both workshops can be found at: https://u.osu.edu/ohwomeninag/.

There will also be an Ohio Farmer’s Income Tax webinar on Monday, January 29, from 10:00 – noon. The cost is $35 and will cover agriculture issues when preparing 2017 tax returns. Details can be found at https://farmoffice.osu.edu/osu-income-tax-schools/farmerlandowner-income-tax-issues-webinar.

We hope you plan to join us at one of these empowering events!

Pickaway County to offer Annie’s Project Series

Pickaway County will be hosting an Annie’s Project series on Thursday’s beginning February 15, 2018. The six week series will focus on the five areas of Risk Management (financial, human, legal, marketing, and production) with one week focusing on a topic of local choice.

Classes will be held at:

Pickaway County Community Foundation
770 N. Court St.
Circleville, OH 43113

2018 Class Schedule and Registration

Feb. 15 5:30-8:30 pm
• Human Resources Risk

Introduction, Real Colors®

Feb. 22 5:30-8:30 pm
• Farm Transition and Retirement

Wills and Estate Planning 101, Insurance (non-crop), Retirement Needs

Mar. 1 5:30-8:30 pm
• Managing Production Risk Liability Issues

Crop, animal, property, Direct and Grain Marketing, Farm & Emergency Preparedness

Mar. 8 5:30-8:30 pm
• Financial Risk

Business Planning, Risk Assessment, Agrements- leases, cash rent, 50/50

Mar. 15 5:30-8:30 pm
• Local Resources

FSA, NRCS, Local Government

Mar. 22 5:30-8:30 pm
• Niche Markets

Ag Panel

Schedule subject to change.

 

Annie’s Project Retreats

Registration is now open for the Annie’s Project Retreats located on the East and West of Ohio but open to anyone who would like to attend.

East Ohio Retreat  January 26-28, 2018

West Ohio Retreat February 2-4, 2018

 

Mission

Our mission is to empower farm and ranch women to be better business partners through networks and by managing and organizing critical information.

Who is Annie?

Annie grew up in a small farm community with a goal to marry a farmer, and she did. Annie spent her life learning how to be an involved business partner with her farm husband. Annie’s Project was designed by her daughter to provide risk management education for women involved in all aspects of the agriculture industry. Since 2000, well over 5,000 women have completed the workshop.

What will you gain?

Annie’s Project participants say they find answers, strength, and friendship – and also grow in confidence, business skills and community prestige through this program. Annie’s Project provides education and a support network to enhance business skills of women involved in all aspects of agriculture. Through the program, you will gain insight and knowledge about:

  • Your personality temperament and how it affects communication
  • The importance of organizational skills and goal setting.
  • How to find resources and work with professionals to meet your goals.