Over the years working with producers and ag lenders, I have observed a wide range of producer-lender relationships. The other day, a group asked me if I could discuss the effective traits of a winning producer- lender team. I have had numerous ag lenders state that the most enjoyable part of their job is working with producers and watching their business, family and personal goals being met. On the other side, producers have told me that without their lender being there in good times and challenging times, they would not be where they are today.
Whether it is a young farmer or rancher starting from scratch, a growing and expanding business, a business in transition, or a business that is scaling down or exiting, a team approach between the borrower and lender is a vital element for success. Let us examine the attributes of a “cut above” producer-lender team.
Both the borrower and lender bear the responsibility of assuring sound use of agricultural credit. One of the traits of a winning team is that the individuals seeking credit must approach the lender prepared to demonstrate that the proposed financing is feasible and consistent with business, family and personal goals. This usually requires some semblance of a written business plan and reasonably well-thought-out proposed financial plan. For an existing business, accurate past financial and production performance records may be necessary to provide a baseline for expectations. The lender, on the other hand, needs to complete an analysis of financial and business information in order to present an informed, timely, customized financial package to the producer. The lender can provide the value-added service of financial and management benchmarking to internal or external databases. This gives a producer a sense of the financial health of their operation, allows them to see how they stack up to peers, and shows how they can improve performance.
Another trait of an effective team relationship is that the lender is not a “yes or no” lender, but a “but what if” lender. A key attribute of the lender is being a good listener, understanding the goals and motivation of the borrower, and asking the tough “but what if” questions to find the strengths and the blind spots of the business. The lender can provide options and alternatives, but not specific advice or actions because of legal limitations. On the other side, the borrower must follow through using the HUT principle. That is, hear what is being said, understand how it impacts their situation, and, most importantly, take action, monitor results, and be accountable for decisions. The producer must select the option best suited for their situation in a negotiated action.
Another trait of an effective winning team is a “two-way street” learning environment. Many associations provide educational opportunities for producers by sponsoring seminars with experts in the fields of production, financial, legal, and risk management, as well as other pertinent topics. On the other side, lenders, even experienced ones, will say that certain producers have been invaluable in keeping them current on the latest changes and trends in the industry. I find some of the greatest gratification and reward comes in sessions such as the Ag Leadership Institutes and the Ag Biz Planner sessions, watching lenders and producers work side-by side in a learning environment developing business plans, conducting analysis of the business or personal financial situation, and assessing different communication styles.
The final attribute of a successful team is open communications. Both borrowers and lenders do not like surprises. From a borrower’s standpoint, do not inform your lender of a major decision after the fact. Allow your lender time to analyze your requests, inform them about changes or problems, and be honest and straightforward all the time. Inaccurate information and failure to honor commitments jeopardizes the producer-lender relationship. On the other hand, a lender should have a reputation of honesty, maintain confidentiality of information, and objectively evaluate situations.
In today's volatile, uncertain global environment, the cooperative spirit and bond is vital for success. Collaborative effort between the lender, with a role as a teacher, coach, and facilitator, and the producer, who implements a business game plan, working side-by-side can make dreams come true.
If you enjoy reading Dr. Kohl's articles, you may find our articles by Danny Klinefelter helpful too.
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