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Ohio banker: Don't hide information from lender

Ohio Correspondent

ASHLAND, Ohio — Be Prepared. This was the message John Augenstein, a loan officer with Sutton Bank, for women at a Women in Agriculture event sponsored by the Ashland County OSU Extension with help from the Ashland Cattlemen’s Assoc. and area farm bureaus.

When it comes to talking to a banker, according to Augenstein, there is no magic formula. The more information presented about a farm, the easier it is for them to have an idea of what is happening regarding its financial needs.

“Your lender wants to know what is going on in your operation,” he said. “Be prepared to discuss the past year’s business events, what happened, was it good or bad. Did you buy, sell or improve capital items. Did you change your operating or ownership structure? Did you have family members come back or leave the farm? Did you prepay expense for next year’s operation? Did you expand or contract the operation?”

These things will impact how a lender looks at a farm, Augenstein said. “You need to take anything that changes how your operation looks to a lender,” he said.

Prepare a balance sheet, using market value versus cost value, as close to the first of the year as possible. Break down assets and liabilities into groups by type and age. Augenstein recommended preparing a balance sheet for each entity involved in the operation.

“Lenders make decisions based on the information presented on this sheet,” he said. “Every lender looks at certain things to determine what producers need to operate. You have to be in control of the numbers and what went in to those numbers so you know whether what you do is within reason. Make sure your lender knows what is happening.”

Augenstein said it is helpful to have a profit-and-loss statement and a cash-flow statement available.

“Tax returns are a great place to discover allowable expenses, but they are a poor place to discover revenue,” he said. “We compare earnings to living expenses and debt service payments to assure that you can manage your current debt levels, but still be profitable with future requests.”

A cash-flow statement helps manage cash flow, and it can show a farmer when it may be necessary to borrow to cover shortfalls in monthly revenue.

“You need to know when your payments are coming, and when your revenue is coming,” he said. “Proper cash-flow planning prevents liquidity problems.”

A business plan is also a good idea, according to Augenstein. Business plans look at the direction a business is going, when and how it is going to get there.

“Your plan should outline the current strengths and weaknesses of the business,” he said. “Address how the weaknesses will be changed to help the business prosper.”

Augenstein explained that lenders have a vested interest in the mechanics of how each farm operates.

“Bankers want to know that you are in charge of the future of your business,” he said. “They also want to feel assured that the capacity and planning exists to successfully manage the operation.
A lender’s greatest fear is that they will over extend credit to a customer family to the point that it contributes to hardship or becomes a destructive force in the operation.”

The fireworks in the grain markets are having an impact on farmers across the country, reported Vicky Holdren, a commodity broker with AgVantage, Inc.

Wheat is the quietest of the commodities, according to Holdren. The national yield is off from the year before. Wheat acres could be on the short side as higher soybean and corn prices may keep some wheat acres from being harvested. With a short supply, prices will be up.

On the other hand, soybeans are in the opposite situation. There was a large carryout of soybeans, but soybean prices have been strong. “If the market realizes there is an adequate supply, the market will respond,” she said.

But it is also winter in South America, and they are harvesting their crop. South American production has been good, Holdren said.
China is a huge buyer of soybeans, and as its economy progresses, eating habits also improve. Biodiesel is the wild card in the mix as it is gaining ground in use.

The corn market has been wild since October, according to Holdren.
The market is volatile and ethanol is spurring rapid growth. Corn carryout was short and prices responded accordingly.

“It is impossible to predict, we could see an acreage switch,” she said. “But even if producers do switch acres, China and Argentina are raising more corn and China is exporting corn.”