The agricultural economic environment, now and in the future, will experience unprecedented change. This will significantly impact business decision-making and the emotional barometer of the human management mindset. A critical player in this environment, particularly for those borrowing money or relying on investor capital in today’s landscape, is the lender or capital provider.
It is important to work side-by-side with a trusted financial partner.
This dynamic is further compounded by the complexities of recent mergers, the retirement of institutional knowledge, staff turnover, automation, and evolving management and leadership philosophies and priorities. Some see nontraditional lenders and investors filling gaps in operating funds and long-term capital needs. Others are challenged by “fit-in-the-box” checklists, credit-scoring models, and decisions made by individuals who never visited your operation.
With this backdrop, let us explore the elements of a “go-to” lender or capital provider. The perspectives I share are based on several decades as an educator in agricultural finance and as a business owner who has borrowed millions of dollars.
Transaction versus relationship lending
Agricultural lending has shifted toward transactional interactions rather than relationship-based partnerships. What’s the difference?
- Transactional loans often are made using a quick credit risk–rating scorecard, with decisions driven by loan committees and analysts who focus primarily on the numbers.
- Relationship lenders, in contrast, analyze the financials but balance them with character, management assessment and the borrower’s historical track record in the decision-making process.
In favorable economic times, customers tend to streamline analysis in the name of efficiency. They focus on the lowest interest rate, the most favorable terms and quick decisions.
In tough economic times, the tables often turn. Credit standards tighten, staff turnover increases and, in some instances, the agricultural industry is de-marketed.
Define “go-to” lender
- Conservative. The “go-to” lender often remains conservative in good times and still requires sound financial information: Balance sheets, cash-flow projections, and accrual adjusted income statements with supplements of detailed data.
- Focused. The “go-to” lender also takes the time to provide meaningful feedback, highlighting both positive scenarios and areas for improvement. They offer trend analysis, peer benchmarking and communicate results in lay terms rather than lender jargon. They offer common sense and customize solutions for your business.
- Education driven. The “go-to” ag lender is highly education-driven, providing opportunities for both the customer and lending team members to sharpen their skill sets — not only for business but for personal endeavors as well.
- Team based. They often tag-team or “team-rope” your account. They provide backup or a Plan B so consistency in the marketplace remains a priority, and you have people who understand your business if a contingency plan is needed.
Steady in strong or tough economies
Yes, certain sectors of the agricultural industry are struggling economically. But the selection of a lender or capital provider may be one of the most defining decisions for a business’ long-term sustainability. This is equally true for those operating in favorable economic times.