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How do you know when it may be time to change lenders?

John Bhend and John Blanchfield for Progressive Dairy Published on 07 February 2020

Breaking up is hard to do but, as the risk manager for your farm, you should be prepared for the day when you and your lender may have to go your separate ways.

Your relationship with your lender is a commercial relationship, and as such you should evaluate your relationship free of emotion. But how do you know when it is time to move on? There are a number of signals you should pay attention to when you evaluate your current relationship with your lender.

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As a producer, you want a bank that has a focus on your primary enterprises. Make sure your financial institution has expertise (and maintains such expertise) for your type of operation. With the many up-and-down cycles in agriculture, you do not want your operation to be out of your lender’s comfort zone. That could limit your farming opportunities when times are less than perfect.

There are many lenders out there who are very proficient and who focus on specific agricultural enterprises. Do your homework. Ask around to find the best lenders in your area.

If you are with a bank that is growing, you may occasionally be assigned a new banker with less experience than you are used to. This does not necessarily mean it is time to find a new institution. Many times, there is a senior banker who is mentoring younger bankers. This is typically an OK situation if you know the bank is devoting time and resources to new people within the market. That is a good indication of their desire to be active and growing.

You should get to know other lenders, loan assistants, credit officers and branch managers within your institution. While every bank is structured a bit differently, your goal is to be prepared if your lead lender is on vacation, quits or retires. You need someone who can immediately assist you and your farm when you need help.

Happy people make good lenders. Be concerned if there is continued turnover in bankers at your institution. Bankers make changes for many reasons. Turnover is not all negative, but continued turnover of tenured bankers is generally not a good sign and is cause for you to evaluate what is happening within your institution.

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What happens if your lender is merged into another institution? Will this be bad for your farm? The answer is: It depends. Many times, a merger results in a lender that is better able to accommodate your needs and better able to offer new products and services to you. However, in some cases, you may find the lender is no longer interested in your operation. If you feel interest in your business is lagging, it might be time to look around for a new lender.

How do you know when your loan is making your banker nervous? One way to tell is if your typical renewal time for an operating line of credit goes from the first quarter of the new year to mid-November to early December of the current year. Typically, this means the lender is evaluating your operation after harvest and before committing themselves to lending to you next year.

This would be a great time to ask your banker what they are seeing in your operation. Your lender might be concerned about consecutive year-over-year losses, late payments, high burn rate of working capital and depletion of collateral. Do not accept an evasive answer. Your banker should give you feedback on what they see as your farm’s strengths and weaknesses.

Do not put your operation at risk by not having a clear understanding of where you stand at this point. You don’t want to be stuck in early spring with no funds for planting. If the answer you get from your current banker is not positive, do not waste time; start interviewing new lenders immediately.

Perhaps the clearest sign that it is time for you to change lenders is if you are assigned a new lender who works in “Special Assets” or the “Credit Management Group” of the lender. In banking, “special” isn’t what you think it is. By being a special asset, your operation has been identified as being a high-risk loan.

As a result of this designation, your lender will be much less willing to advance additional funds to you and might even begin “collection” activities. This is definitely the time to be on your way out the door, but you should know that once your operation has slipped to this level, it might be hard for you to find a new lender anywhere.

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You should always know one or two additional banks and bankers in your area who have a basic understanding of your operation. If you do decide it is time to make a change, you don’t want to be looking for a banker just weeks prior to planting in the spring when you and they are at their busiest. You want to know ahead of time who you want to work with while everyone has time to develop a relationship.

Your banker should be someone who is part of your advisory team and with whom you can communicate on many levels. Your banker should understand your risk management plan including commodity, business continuation, legal, interest rate, insurance, estate planning, financial reporting and other many areas. In exchange, you owe it to your banker to provide him or her with the information they need to retain their confidence in you. Managing your relationship with your lender takes work, but the right relationship is critical to the success of your business.  end mark

John Blanchfield owns Agricultural Banking Advisory Services, an independent consultancy that works for banks that lend to farmers and ranchers. He makes many presentations about borrowing money to farmer and rancher audiences. Email John Blanchfield

John Bhend
  • John Bhend

  • Vice President of Ag/Commercial Banking
  • CCF Bank
  • Email John Bhend

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