SW Financial Literacy
A few of my posts on Twitter/X (@gwiesefarms) about working hand-in-hand with your lender received some surprising feedback:
-Why is it the lenders job to educate the farmer? Lenders are money salesman. They have a vested interest in selling you more money. Good management focused accountant is much better suited IMO. One that doesn’t just look at everything with tax goggles on.
-Lenders aren’t advisors, if they were that would be a conflict of interest, since the lenders job is to loan you money.
-Why would I want feedback from an entry level salesman?
(To see these posts in full context, they can be found in ‘reply’ from various posts I made on 1/11/2024.)
My initial response was surprise. Aren’t all advisors in the ag industry also selling you something? Do you have a seed advisor and then a separate seed dealer? What if they don’t agree with each other’s recommendation (and why would you pay double when one can do the job)?
I wouldn’t go to my agronomist to find out if the tractor I was buying had enough horsepower for my equipment. Those giving advise need to have experience in the subject they are advising.
Farmers should be surrounded by advisors they trust in all areas of their operation. I continuously see that operators with the most attention to detail and the largest network of (expert)advisors come out on top financially. The timelier the feedback (regular appointments), the quicker you can adjust on the fly to make improvements and get ahead of the competition.
Here are some ways you should be benefitting from your lender as an advisor:
Provides a second set of eyes to make sure your financial statements don’t have errors and are realistic within the industry. (Basic)
Lender should be working with 10-50 other operations like yours, allowing them to spot financial trends sooner to share with you. (Basic)
Has knowledge of what other operations are doing which can help solve your problems. (Basic)
You don’t know what you don’t know. If you aren’t talking financials with anyone else, how will you know if you are financially in a bad spot and need to cut expenses or are strong and can expand? (Basic)
Getting you out of a pinch. If the relationship is already established, it is much easier to get financing. Without a pre-existing relationship and the lender having knowledge of your position, 11th hour emergency loan requests won’t get approved. (Basic)
Help you understand what your financials mean, and how your current position could limit you or be used to your advantage in the short and long term. (Advanced)
If they know your plans for the future of your operation (like buying out a landlord), they can let you know what steps need to be taken to be financially prepared when the time comes. (Advanced)
Get insights into ground exchanging hands, comparable sales, interest rate trends, new loan products, cash rent changes, and successful new business strategies. (Advanced)
Financing scenarios: You are buying out the neighbor and need financing for:
Acreage = $400,000
Bin site = $1,200,000
Shed = $500,000
Equipment line = $1,500,000
160 acres = $2,000,000
New operating note = $1,750,000
Do you know how much cash to put down? How long can you term each note out? What collateral can be used for each note? How can you structure notes to take advantage of your tax situation? What cash flows? Which assets can or should be combined in the notes? Do you have enough operating room to service the expenses? What options are there for seller carry financing. (Advanced)
More endless options: Buying a tractor (or land/building/ anything):
Loan or lease? 3, 4, 5, 6, or 7 years? All cash? All finance? Somewhere in the middle? How do I pay off early? Can this be combined with existing equipment? What if rates move lower? How can this financing preserve my cash? How can this financing maintain my margins? (Advanced)
Lenders should be giving you options. If they are telling you how it must be done, that means:
They don’t have the experience to provide more options or aren’t looking out for your best interest -or-
This is a tight deal; your financials aren’t strong enough for options to be available.
If you don’t have a trusted relationship, you won’t know the difference!
Find a lender that has your long-term interest in mind and isn’t just there to get loans out of you. Mutually beneficial relationships are WIN-WIN!
Have a great week!
Grant
All views expressed on this site are my own and do not represent the opinions of any entity whatsoever with which I have been, am now, or will be affiliated. Information provided is authentic to the best of my knowledge, and as such, is prone to errors and the absence of key details. The content of this blog is for entertainment and informative purposes and should not be seen as professional advice to finances or any other field.