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Farmers And Lenders: Yikes! Now What Do We Do?

April 21, 1997

Most farmers and ranchers have operating loans to handle the production year. The lender and ag borrower work together to project goals, profits, cash flows and capital requirements for the year.

With agriculture, both parties are taking a risk. Sometimes, like this tough winter in the Northern Plains, normal assumptions made when the loan was drawn up may not hold up.

This winter has produced an accumulation of breakdowns, repairs, weak calves, and high death losses. Flooding and wet fields may shorten the growing season. Things add up.

So now what happens to the farmer/lender relationship? How can lenders and ag borrowers work as a team to resolve difficulties about repayment and recovery? Here are some ideas.

What the lender wants:

Be open and honest. The lender wants a fair shot at helping the distressed producer deal with any problems.

Problems aren't going to go away by themselves. With good communications, they can give each other a chance to make adjustments. The sooner everyone knows, the better the results.

Feeling anxious and scared about the lender's reactions to the disaster is natural. Ag lenders are usually a caring bunch. They have farm backgrounds and are highly sympathetic to farmers. They will offer support, ideas and hard work to get through a tough time. They know how uncontrollable this winter has been.

If you hide problems or go around the lender's back to take on new debt you'll break down the trust you need with your primary source of credit. Being honest when things are going good is easier than when times are bad. Don't let your lender hear about your problems or financial dealings on the street.

Walk the talk. Behavior is predictable by what farmers do, not by the lip service they give to their goals. Don't tell your lender what he or she wants to hear and then go and do as you please anyway. Follow the plan you've set out. If you do, you'll receive trust when you need it the most.

Be realistic. Be willing to shoot for reasonable and obtainable goals. Borrowers who are caught up in dreams kid themselves and adopt "pie in the sly" projections. The biggest dreamers are farmers who feel "entitled" to farm and see farming as a way of life instead of a business.

It is the common sense producer who deals with problems straight on that wins the confidence of the lender. Farmers should know their cost of production, breakeven points and be realistic about projected income. The financial management of the business is as important as the production side.

Lenders appreciate producers who have a healthy respect for debt. Lenders like to see someone who is willing to cut back rather than expand their way out of trouble. Borrowers who don't have self-discipline with their lifestyle or run up credit card debt usually aren't good at controlling their operating costs. The answer to a problem isn't always a bigger loan.

What the borrower wants:

Respect the hard work, dignity and pride involved in agriculture. If personalities clash, change a loan officer to someone the farmer can work with. Problems can be solved with time, effort and the right people. Give the farmer time to come up with the right answers instead of imposing them on him. Sometimes it takes time for emotions to settle.

If partial liquidations or other workout situations occur, assume some of the losses. Leave a little something on the table so farmers can have a fair chance of holding their heads high and rebuilding their lives. The respect you show distressed borrowers when they are feeling bad means a great deal.

Take your customers as they are. Some farmers aren't as financially astute as others or as you'd like them to be. Be patient and take the time to let them know what you expect. Many of your clients may not be perfect customers but they are still bankable.

Keep it professional. Live up to your agreements. Inform producers right away if there is a problem. Don't hold back bad news. Give them time to correct the problem. Insults, blame and anger are part of an emotional response to stress. Don't take it personally and overreact to expressions of raw emotion.

Don't take over problems or micro-manage decisions. Farmers can live with the results if it is their ideas and

actions that matter. The roles of the lender making credit decisions and farmers making farming decisions and living with the results needs to be clear.

As strange as it seems, if a lender has been too friendly and close to the family, it may be embarrassing to approach the bank during a crisis. Perhaps a switch to another loan officer can ease the way to more honest and frank conversations.

When the winter and spring of 1997 are in the books, perhaps one good memory will be how lenders and producers worked together to get through a tyying time.