A lot of young farmers just getting introduced to their banker might think “well my father or my grandfather borrowed here, I have the right to the money in the vault.”
“Family ties are really important,” said Curt Covington, Senior Vice President, Farmer Mac. “The reality of the matter is it is a test between bankers and their farmers.”
Covington addressed this financial misconception as well as others during his presentation, “Nurturing Your Banking Relationship in Difficult Times” to nearly 400 corn growers Wednesday at Wyffels Hybrid’s annual Corn Strategies event at the Williamson Brothers Farm in Ruthven, Iowa.
“Some borrowers walk in and think it is the obligation of that banker to give them money and that is absolutely fiction,” Covington said. “You as the borrower have an obligation to make your case to the banker.”
Covington said that’s a hard thing to do if you don’t have a recipe for doing that.
Another popular belief … exceptional farmers make exceptional borrowers.
Covington says maybe.
“Eight-dollar corn can make the worst farmers look pretty good,” Covington said. “Strong vocational requirements on the farm is great, but you also need a good set of financial records to show the banker.”
Covington said farming skills are important, but it’s only a part of the story. You also need to be good at financial management, short and long-term planning, decision making, and communication.
“The most important form of communication between you and your banker are your financial records,” Covington said. “Small talk is great, visiting the farm is great, you develop personal relationships with your banker — but bottom line, that banker is taking on risk and representing you in front of the bank’s credit committee.”
Ag bankers expect surprises. After all, it’s agriculture right.
Covington says false. Bankers are in the risk transfer business.
“It’s your business, but it’s our money,” Covington said. “I know that hurts but it’s true. If you had a business partner how would you treat them?”
Building a relationship with your banker based on mutual respect is over rated.
Absolute fiction, said Covington.
“Nurturing a relationship is not fun,” Covington said. “It is a full-time job to manage that relationship with your banker.”
Covington offered these tips for nurturing your banking relationship:
- Get your financial house in order to know where the furniture is.
- Present a plan for the coming year. That plan should include revenue and expense projections, supportable assumptions – estimated price and yield, and a marketing/risk management plan. Know your working capital position going into the season. What level of stress can you absorb? What capital purchases do you have planned?
- Plan your ask- operating loan size, equipment financing, real estate financing, etc.
- Follow through. Get your banker what they need as a priority. Do what you say you are going to do.
Finally, Covington said think about that banking relationship not only during the tough times, but the good times.
“The measure of a good borrower is how they behave during the good times,” Covington said. “What were your habits? Many of those habits don’t go away.”