Dr. Val Farmer
Rural Mental Health & Family Relationships

Are You And Your Lender On The Same Side Of the Desk?

April 5, 2010

In this volatile farm economy, there are so many unknowns. What will this year bring with weather, prices and cost of inputs? The hog and milk prices continue to create anxiety and stress.

This is a crucial time of the year when producers and growers make key projections regarding this year’s income, expenses and profitability. If you foresee potential problems with cash flow and debt, how do you and your lender work together to weather the storm?

Here are some helpful ideas on how to make this relationship work best.

1. Remember, this is a partnership. It is a key relationship outside of the family arena that is essential for business success. It is in the lender’s best interest to have the loan repaid on time and that there are profits for the producer. That is the goal. You are both working for the same thing.

2. Include your spouse. Women need to be included in these discussions so they know where they stand with debt and the status of the farm in terms of equity and income projections. Women who aren't included aren’t informed and can’t serve as sounding boards or provide that needed reality check.

Farming and ranching are hard, stressful professions. It is emotional. Family support gets people through tough times. Your lender will have more confidence in your operation if he or she sees the two of you working together and equally familiar with the stakes and obligations of the coming year.

3. Be good at communicating. Take every opportunity to communicate in a positive, proactive manner. Your lender should hear about your problems directly from you first, not from the street. Be quick to communicate openly about your situation.

Almost all lenders are interested, caring people who want to solve problems if they are given a chance early on to work with you. You don't win points by staying away - even if there are some fears and unknowns with the situation.

4. Be honest. Trust is the cornerstone of all good relationships. Don’t violate your trust succumbing to the pressures of finance. Don’t rationalize your values in order to justify a deceptive or illegal action. No matter what happens, keep your integrity. Your straight forward dealings will stand you in good stead with your lender as in life.

5. Watch you emotions. There are so many factors outside of a farmer’s control that it is easy to feel angry, upset and frustrated. Life isn't fair. The hard work of farming and ranching isn't always rewarded. The markets and the weather can mess up the best plans.

It harms the lender/borrower relationship to blame and take out your frustrations with the most visible player in an economy that goes haywire from time to time. Your lending institution is trying to survive in that same environment. To clash and shut off communications by angry outbursts doesn't help. The feeling tone of the

negotiations should be friendly, courteous, respectful and pleasant, even if hard things are talked about.

6. Be good at negotiating. Good negotiators radiate confidence in their ideas. They have an appreciation for the key limits or needs on the other side of the desk.

Listen and understand what the lender needs. Have a working knowledge of what those factors are and show by your plan how you want to satisfy their basic requirements. The best negotiators know the other fellow's concerns almost as well as their own.

Don’t just dump a problem and expect the other partner to solve it. Come in with your plans, know your numbers and what they mean. Show how you expect to repay the loan. Projections have to be realistic: not "fantasy in - fantasy out."

One common expectation of lenders is that you will come in with a marketing plan. Almost any plan will do. Have something in place that shows you know when you are going to sell your production, at what levels and what the profits might be. Holding on to crops or livestock to hit market peaks is too risky in today’s volatile farm economy.

Be conversant with your family living budget and how you are living with that plan. Lack of discipline about personal record keeping and decision-making casts doubt about your overall management of the operating loan. This is one area of concern for lenders who see credit card debt and big purchases during a down year. These are red flags of poor fiscal management.

7. Find someone who believes in you. Not everybody hits it off. Personality clashes can get in the way of business. If for some reason you don’t get along with a particular lender, don’t be afraid to ask for a change. It is the relationship that makes this work. The lending institution sees it the same way. They want open and respectful communication.

If communications have broken down, get an outside mediator to come with you to help get communications rolling if somehow you’ve gotten off track. A third party can help spot problems and make helpful suggestions.