The operating loan renewal process can be daunting, especially in today’s arduous environment. The purpose of this article is to explore the steps necessary to prepare for an operating loan renewal. The bank’s decision is out of your control, but what is in your control is how well you prepare for it and the quality of the documents and information you provide.
1. Get Started Early
The first step to preparing for an operating loan renewal is to start early, at least 2 to 3 months in advance. A timing cushion ensures that you can maintain control of the situation and the process, instead of running out of time and ending up in panic-mode! Taking a pro-active approach is always better than operating in reactive mode!
2. Maintain Proper Records
Next, be sure your accounting records are ACT (accurate, consistent, & timely). Proper accounting is very important, as is consistency over time. Providing up-to-date financials is also crucial, as the bank cannot make a decision on your loan using out-of-date information. Communication with your accountant is key here; the better the communication, the more ACT your financials will be. This is true whether your accountant is an on-farm staff member or you subscribe to accounting services with a vendor such as AgriSolutions, LLC. Additionally, don’t let your lender create your balance sheet for you based on information you provide, such as your tax return. Submit a complete set of financials that are prepared by your accountant that you understand, are comfortable with, and feel confident discussing.
3. Provide a Budget
Provide your lender with a realistic budget for the next operating year and be prepared to answer questions about your plan. Make sure that your budget makes sense when compared with past performance. If your plan for the next year is wildly different than your performance for the current year, provide specific details as to why.
4. Explore Multiple Lenders
Remember to periodically shop a few different lenders. There are many lender options available, as well as several different types of loans. Interest rates, structure, and timing will vary; take the time to review the possibilities and find the one that works best for your operation!
5. Bring Financial Information
Finally, gather your financials and other important documents, such as prior year tax returns, and go to your meeting. Be calm and confident when you talk to the potential lender. Take ownership of your past performance and be willing to make changes and cuts where necessary.
If you need help working with your current lender or preparing to tell your business’s story to a potential new lender, contact an expert that can understand your financial management needs. For more information about available loans and how to secure the appropriate funding for your farm, subscribe to our blog!
