Oct 26, 2017
Dean covers approaches for improving your lender strategy, joined by ag lender Jason Peterson. Jason Peterson is Senior Vice President and Ag Commercial Lender at Bell Bank in West Fargo, North Dakota. Jason enjoys working with the local community, assisting people with their finances and forging relationships in helping farming and business operations succeed. He’s also quite the college football fan. (Go, Bison!)
Way back in episode three of Modern Farm Business podcast (The four responsibilities of the farm leader), the fourth responsibility we covered was CAPITAL. Now, for the first time in modern history, we are facing a fourth consecutive year of negative net returns in agriculture. Lender relationships are more important than ever before, so in this episode we are discussing some of the changing dynamics and tools for building the farm’s capital plan, calling on Bell Bank Senior Vice President and ag lender Jason Peterson for some insight along the way.
“Business doesn’t happen on a handshake anymore.”
“My banker makes me jump through all these hoops that I never had to deal with before.”
There’s some truth to these statements, not only due to
increased ag lending regulations over the years, but also because
of recent tighter margins and cash fl ow. Peterson says it’s
important for farmers to recognize, though, that very few of these
sort of large-dollar transactions at the bank are simply able to be
signed off by one person these days. A lot of times these large
lending decisions require a vote by committee or approval of a
senior loan offi cial,
and your banker will be accountable to answer very tough questions to fi ght on your behalf. It’s very helpful for your banker if they can demonstrate to the committee that you have a solid, executable plan in place to address any challenges which might impede repayment of the loan.
If you want to be positioned as a “risk of choice,” make it clear that it’s easy to do business with you. This means understanding the lender’s world so that you can align your approach with their needs. Look at it through these two lenses:
I. NEEDS AND EXPECTATIONS are important to establish in any relationship. Without established needs and expectations, we are left to make assumptions about what the other party wants out of the relationship. This leaves the door open to disappointment when one or the other is unfulfi lled. NEED is the specific thing they need from you to be able to do their job. EXPECTATIONS are more nebulous and can vary from lender to lender. You need to ask questions of your lender to find out what their needs and expectations are for you. In addition, you need to make clear your needs and expectations of the bank in this business relationship. Peterson says he likes to get farmers thinking first about and communicating what it is they themselves desire and expect from a banking relationship. Only after that’s out of the way will he typically explain the bank’s side of the relationship—which relies on transparency throughout the entire growing season regarding expenditures, budgets, repairs, maintenance and financing—so that there are no surprises in store when they talk again.
II. YOUR PLAN is the simple elements that you lay out in order to fulfill the expectations and focus on the needs of your operation. It consists of three elements:
1. Business plan: Peterson says he expects a business plan to be a living, breathing document that has flexibility to change as time goes on. He also likes to see separate scenario plans. His ideal loan candidate will have readable, well-organized plans that can be revisited and readjusted down the line to see how the operation is faring against what was laid out. The candidate will also be able to answer questions about the plans and numbers they present to the banker. Don’t ever be in the position where you have to say, “I don’t know. You’ll have to ask my accountant.” Says Peterson: “These are your numbers…These are multi million-dollar businesses we are dealing with…You need to know them. You need to fully understand what is making those numbers tick.”
2. Communication plan: Helps to decide early what to do and when to do it, so it becomes easier to execute later. Critical WHATs WHENs and HOWs
3. Backup plan: Ensures that you have more than one relationship in the banking world. It’s not about pitting one lender against another or being sneaky. This is about having someone warming up in the bullpen should your banker decide to retire, switch jobs or move, or if the relationship otherwise becomes severed unpredictably. It’s OK to foster a relationship with someone else who can understand your operation and that they might someday fit into it should the need arise.
We always welcome your feedback at Modern Farm Business Podcast. Do you have suggestions for future episodes, or questions on something we’ve already covered? Drop Dean a line at firstname.lastname@example.org. He’ll look at each email personally and respond as quickly as possible.
Thanks for listening! See you next week!