How Do Lenders and Farmers Work Together Better?
The agricultural industry is ever-changing with technological advancements and supply and demand shifts. This means that farmers need to be able to access funding when they require it to keep their operations moving forward. In the United States, agricultural lending is an important component of the financial industry, with billions of dollars being loaned to farmers and agribusinesses each year. But how can lenders and farmers work together better to ensure the best outcomes for both parties?
Focus on Communication
Regular communication is important, and honest regular communication is better. Open communication is the most important aspect of a successful lending and farming partnership. Farmers need to be transparent with lenders about their financial status and realistic projections about their business plans. Lenders, in turn, need to be transparent about the terms of any loans or financing and what types of funding are available. With open communication, there's less chance of disagreements, and both parties are more likely to achieve the results they need. Also, farmers need to be upfront about financial circumstances when things are strained. Secrets that don't benefit anyone, and a lender will probably find out about them anyway.
Understanding of the Agricultural Industry
Lenders need to understand the unique challenges that farmers face. They need to be aware of the risks farmers face due to weather events, crop failures, and other factors beyond their control. If lenders understand the nature of the farming industry, they can offer more targeted funding programs that meet the specific needs of farmers. Fewer lenders have significant connections to agriculture and often look to their customers to teach them. This exchange is even more critical when working with an institution that may not focus on the ag industry. If a relationship manager understands a borrower's business and industry, they are better equipped to advocate internally for loan approval. And considering the industry holistically, more lenders who understand agriculture benefit farmers and ranchers everywhere.
Being Proactive About Risk Management & Business Planning
Both lenders and farmers should be proactive when it comes to managing risks. Lenders must take reasonable measures to protect their investments – like setting an appropriate repayment schedule, collateral verifications, and other terms and conditions. Farmers also need to take steps to reduce the risks they face. By working together to identify and manage risks, lenders and farmers can mitigate any possible losses. Risk management strategies could include insurance policies, regular market analysis, equipment maintenance schedules, and production practices that consider crop rotation and soil management.
Successful lending and farming partnerships should also complete regular reviews of business plans. These reviews enable both parties to assess progress and adjust as needed. Regular reviews can ensure that the right financing is available at the right time and that the farmer's business plans are developing as expected. Lenders should actively participate in business plan review discussions, providing input and guidance where appropriate.
Build a Sustainable Relationship
Building a lending relationship is like any relationship - it’s okay to be picky about who you work with. Lenders and farmers should aim to build long-term, sustainable relationships. This means that lenders should be available when farmers need financing but also understand that there may be times when farmers don't need financial assistance. Sustainable relationships aren't just about providing funding but building trust and understanding each other's businesses. With a strong relationship, lenders and farmers can work together to achieve long-term success.
With mutual trust, open communication, and a commitment to managing risk, lenders and farmers can work together to build sustainable partnerships. The key is to understand the need of the farming industry and take a pragmatic approach to risk management. When the proper funding is available with favorable terms, farmers can focus on what they do best – growing the food we depend on. With effective partnerships, lenders and farmers alike can help ensure a secure and prosperous future for farming communities across the country.
