Are You With the Right Lender?
Is your lender the right partner for your operation? While some farmers treat their lenders as a means to an end, top operators know their lender is and should be considered an ally to their business’ success. But how do you know if you’re getting bang for your buck? Lenders say shop around.
Step 1: Evaluate the Relationship
“I think it's a good practice, even if you've been the customer of an institution for 5, 10 or 15 years, to get a second opinion,” says Alan Hoskins, president of American Farm Mortgage adding if leaving your current lender won’t result in your losing value, then you need to consider why you’re staying?
Do some critical thinking about your lending relationship before your next meeting at the bank. Think through questions like “Is our banker passionate about agriculture?” “What makes our lender a good fit for our business?” Be sure to include your partners in this brainstorm, Hoskins advises.
Step 2: Confirm You’re Not the Problem
Before you walk away, identify what works and what doesn’t work in your lending relationship.
The first clue the lender relationship isn’t working is a breakdown in communication, says Lynn Paulson, senior vice president of Agribusiness Development at Bell State Bank in North Dakota.
“Maybe during the super-cycle it was okay for a lender to renew a loan in January, shut the loan file and not talk to the borrower until next fall, but that’s not the case anymore,” he says. “Don't go dark on your lender, and the lender shouldn’t go dark on you.”
When you talk to your lender, be honest about what’s working and what’s not working in your operation, Hoskins adds.
“Candidly, it's just a scary if all you hear are the positives,” he says. “I think when we see people being balanced in what they're sharing with us, it tends to make us look at them more as a true partner because they are looking at all sides of the equation.”
Your lender help you comb through your financials, of course, but they should also be trusted advisors, Paulson says. Challenge your lender to help you understand what you’re doing well on your farm and what is working well for other clients. Additionally, he says, your lender should provide you with risk analysis.
“It’s our job to lay out the financial risks, options and the consequences of those decisions,” he says. “There are some farmers struggling and we want to make sure that we're honest with them and saying, ‘Okay, this is plan. But if this plan doesn't work out, this is the next step.’”
Step 3: Consider the Options
If your needs aren’t being met from your current lender, it’s time to find a new one.
“If all you get from your lender is money and a hat, then you're in trouble,” says Chris Floyd, CEO of First National Bank of Syracuse. “It’s time to look for a real partner to help your operation move forward.”
Don’t hesitate in shopping your credit—go talk to another lender, Paulson encourages.
“At the end of the day all lenders want farmers to succeed, and quite frankly, there are times when it's just not a good fit, whether it be a personality or maybe even the philosophy of the bank that conflicts with the borrower,” he says.
Different lenders have various approaches to credit, risk and liabilities. As a result, there’s no downside to shopping around, Hoskins says.
“The worst thing that can happen is you find out you have a great lender and great relationship,” he says. “The best thing that can happen is that you find a lender and an institution that might provide you more value.”
A Checklist of Questions About Your Lending Relationship
Consider all of the ways your lender is a partner in your business, American Farm Mortgage’s Alan Hoskins advises. He recommends producers think through the following questions.
- What suggestions provided by our lender have we implemented that made us better?
- What unique skillset does our lender possess compared to others in the marketplace?
- How did this translate to quantifiable value for our operation?
- What is our lender’s passion level for agriculture?
- How well does our lender recognize the opportunities present in challenging times?
- What would it cost our operation to not do business with our current lender?