In recent columns much discussion has focused on the bank that had packed its bags concerning the agriculture and small business portfolio. In defense of this bank, the recent financial crisis and new bank regulations, i.e. the Dodd-Frank Act, may have contributed to their change of strategy. That being said, the producer panelists put together a compelling story about what a bank or lender should not do.
Exhibit C: An October Surprise
One panelist indicated that the bank had encouraged his family to utilize an operating loan for a construction project in the business and for a new log home on a rural property. All was going well until one October day when a call came in from the bank in question which resulted in a change of the rules midstream.
First, this business’ operating line of credit was cut in half overnight as a result of panic at the senior management level. Next, they were placed on an aggressive principal reduction plan that squeezed cash flow for this very profitable business. Again, another lender who had been cultivating a relationship for years gladly extended a loan with less aggressive terms of repayment to this family who had been the previous lender’s solid customer for many years.
The panelist’s comment was that this bank was too focused on the short run bottom line, while disregarding the people and long term loyalty of the business. In an attempt to win these individuals back, the bank in question sent a new loan officer/teller with a gift basket to visit. The producer’s comment was that they took advantage of his family's loyalty. He further was quoted as saying they need to reward customers while they are customers, instead of when they become former customers. Fifty years of loyalty went up in smoke with two actions.
Quote: Seek a lender that has the horsepower, but still acts like the little guy!
Editor’s note: Dave Kohl, Corn & Soybean Digest trends editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at email@example.com.