GROWING A RELATIONSHIP WITH YOUR FINANCIAL SOURCE
Jim Hansen, CA, Partner
Better Farming
January 2008
For many members of the agriculture industry, there is a pressing need for capital to grow the business. It might be for more acreage, to buy farming implements, land maintenance equipment or any other purpose. In any case, it can be frustrating when an excellent opportunity – such as some suddenly-available land – goes to another farmer because financing was not available.
Most farm owners think “big banks downtown” when they think “financing,” but they should also consider credit unions, local banks and the Farm Credit Corporation. Remember there are banks that specialize in farming and have devoted the people to that sector.
In looking for financing, it’s important to see the world from the perspective of the financial source. Most financiers deal with a wide variety of industries every day and will need to be educated about the industry in general and your business in particular. The farm specialists already have an appreciation of many of your issues. For the non specialist financier they may be concerned about certain issues relating to your industry such as weather and growing conditions and the difficulty of forecasting revenue. It’s important to tell the financier to how you deal with these issues, possibly through insurance or pesticide use as you see dealing with it on your farm. Likewise, point out the strengths of your sector which influence both the market demand and the pricing that’s attainable for your product.
Each financier has a “portfolio” of loans; you need to be able to show her or him how your loan will fit into that portfolio. Some assets you want to buy will start showing a return on investment immediately, such as machinery. Others, for instance land which is not being farmed, will take longer to show a return. The financier needs a mix of loans that will provide quick returns and others with a long-term view, so be sure that she or he understands how you can be a solution to her or his portfolio needs.
The financier will likely have many proposals on the desk at any time, and you must be convincing about why yours should go to the top of that pile. Give the financier the information he needs to help you. Make you application the one with the information and the answers to the questions. By thinking of your situation from the financier’s point of view, you’re more likely to get an “approved” stamp on your financing application.
