Now is the time to start getting your financial game plan in shape if you are an agricultural producer.
First, regulators will require agrilenders to provide more financial documentation, information and data. This is a result of the sub-prime housing crisis, and a proactive measure to prevent the agriculture industry from following the same path.
Next, expect your lender to demand larger down payments and equity when financing capital assets. Some agrilenders are reducing the amounts loaned on real estate from a maximum of 80-85% to 65-70% of value. Your business also may be a victim of sector performance. For example, the hog industry is in a down cycle, causing some institutions to curtail lending to that industry. Other hog businesses are so large that the agrilenders cannot finance them or find others to collaborate in financing even successful hog businesses.
Here are five points to shape up your financial game plan:
· Check your credit score and your spouse’s and partners’ scores, as well. Now 720 is the standard to strive for.
· Conduct a review with your lender of the last year’s financials. Utilize their input to determine strengths to build upon and areas for improvement.
· Points three and four are to keep strong equity and working capital reserves. Grain producers should be building these components of the balance sheet in high gear right now.
· If you have an opportunity or challenge in the business, be open to discussing it with your lender. Remember, they do not like surprises or individuals who put their head in the sand when a negative turn of events transpires.
Editor’s note: Dave Kohl, The Corn And Soybean Digest Trends Editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at [email protected]