“Lenders will tell you that no one has the right to get a loan, no one has the right to farm”
SENIOR LENDING MANAGER, AFSC
Unless you’re a rare farmer who operates without debt, there’s someone you really need on your side – your banker. That means building a relationship with him or her vital, says a banker with more than 30 years experience of working with farmers.
“Lenders are not investors,” says Denis Cote, a senior lending manager at Agriculture Financial Services Corp. (AFSC). “They have simple expectations: they want assurance of payment and want to make loans with the least risk.”
That’s why money always flows to the best and easiest projects, Cote told the Canadian Consulting Agrologists Association’s North America Consulting School in Calgary last month. That’s not always agriculture, and it’s definitely not those who often need borrowed capital most: young, unproven farmers; farms suffering financial hardship due to choices, weather or markets; or farms that are already carrying significant debt loads.
“In times of scarcity, the people with the best track record and the most assets can still find money relatively easily and relatively cheaply,” Cote said.
For everyone else, there are techniques to increase the likelihood of your lender stamping “approved” on the top of your application.
First and foremost is relationship, especially when going after a larger, more complicated loan. Cote said that in more than 30 years of agricultural and commercial financing experience, he has learned that relationships count.
“Funny things happen when you start to work with people. If you like them, you start to invest some emotional capital in them.”
Cote said you want the person who is making the decision on your loan request to know your story, trust your integrity, and care about your family and your business. While the numbers on the loan application form the majority of the decision, don’t discount the importance of relationship, he said.
More than one
Given turnover in the lending industry and the fact that most loan officers no longer have the authority to make the final decision on granting a loan, don’t assume your relationship with a single individual is adequate.
“You’ve got only one contact at that lending institution, you have only one face, one voice as your champion,” said Cote. “Ask your lender if he or she has the authority to make the final decision on your loan and, if they don’t, find out who does and what, if any additional information, they may need.
“A lot of farmers say ‘I can’t ask that,’” said Cote. “Why can’t you? Ask them.”
Preparation before meeting is important, Cote said. Lending decisions are based on an applicant’s industry, capacity to repay, quality of security, and business management ability.
While you can’t control the lender’s opinion of your industry, you can influence how you present your individual risk profile. Be prepared to provide background – who you are as a person and a business person, what your business’s strengths and history are, and detail on exactly what you want.
“Don’t let the banker assume what you want, know the specifics on why you are a good candidate for a loan, how you’ll pay and what assets/guarantees you can pledge”, Cote said
Agriculture, because of its high knowledge threshold, income variability factors like weather risk, government policy demands, market demand changeability, crop pricing fluctuations, and traditional low return on loans “can be a challenging industry to lend to,” Cote said. Therefore, inviting the lender out to your farm and educating him or her about your industry and your operation is also important.
“Lenders will tell you that no one has the right to get a loan, no one has the right to farm,” Cote said. “Lenders can sometimes seem hard hearted,” he said, so softening that heart can be an important step towards being approved for financing instead of being politely pointed towards the exit.