A decade ago, our friends & colleagues, extension economists across the Southern region, developed a comprehensive collection of articles in Surviving the Farm Economy Downturn.
Well… what is old is new again. The issues addressed in that publication are all too relevant today. Today, we’re focusing on one particular article discussing the borrower/lender relationship. While most annual operating loan renewals are in place, it’s a good time to emphasize the idea that the borrower/lender relationship should be ongoing throughout the year.
Key takeaways from Working With Your Ag Lender in Good Times and Bad:
Partnership
The dynamics of the borrower/lender relationship are unique. Much more than a simple customer transaction, both parties are dependent and literally invested in the business of the other. As such, both should consider it a partnership and expect to work together.
Full Disclosure/Trust
A good partnership needs to be built on trust. Both parties should be open about their business as it affects the other. Borrowers should disclose any changes to original plans and/or other transactions that affect repayment capacity. Lenders should fully disclose their processes, standards, credit decisions, and timing, which could affect the borrower’s access to capital and business operations.
Communication
Communication should be continual. Don’t leave your credit discussion to that once a year loan renewal process. Both sides should be willing to have ongoing discussions about progress, ideas, successes and challenges. Importantly, don’t just engage in communication because you have something to say. Start a conversation for the sake of what you need to hear.
Know Your Business
One of the things that makes a borrower a good partner is that they know and can explain their own business very well. A manager who is on top of their game builds confidence in the lender. The same is true for making a lender a good partner. Borrowers want lenders who are well-versed in the operations of their credit institution.
Know Your Partner’s Business
We all remember a grandmother telling us, “Mind your own business.” At some point, she probably also told you to “put yourself in the other person’s shoes.” In this case, it is the business of both partners to put themselves in the other’s shoes. Each should take the time to understand how the other operates, their incentives, their profit structure, and how they make decisions. Listen and learn from each other, and… always listen to your grandmother.
Check out the full article (pg. 38), as well as the other articles in Surviving the Farm Economy Downturn.
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