Working With Your Lender In Turbulent Times

     The income statement should not be my cash basis Schedule F or W-2 tax form. To see a true picture of my operation the banker needs an accrual adjusted statement that shows changes in inventory, accounts receivable, prepaid expenses, an accounts payable listing, and owner draws/family living expenses.

    Lenders will probably also ask for my personal financial statements. Personal credit card debt should be less than 15 percent of net farm and non-farm revenue.

    Lenders will be looking for off-farm investments on personal financial statements. Long term savings like IRA's, 401-k's, or SEP retirement plans indicate financial discipline and responsibility. Investments in snowmobiles, motorcycles, watercraft, and other “big boy toys” will bring up red flags.

    When doing a trend analysis of my balance sheets, a lender will be looking for earned net worth vs. appreciated net worth. Has the net worth on my balance sheet increased? If so, is the increase solely due to the increase in valuation of my assets, or is it due to earned profits that I have used to reduce debt or invest wisely in the business.

    Do I know my cost of production? Can I come up with my cost of production by enterprise? Have I developed short written documentation of my past progress? Does it indicate obstacles I have overcome in the past? Do I have a listing of short term (this year) and long term (3- to 5-year) goals?

    A concise bulleted statement of where I see my business going and how the lender can assist in that vision is essential to help the lender buy into my plan.

    Time spent getting your financial package together this year will pay dividends when negotiating with your lender.