Not fully disclosing your debts or making a surprise purchase is something that will get your lender’s dander up. At a recent experienced ag lender school in Omaha, NE, their pre-class assignment was to list their best and worst experience as an ag lender. One lender’s worst experience was very relevant to the aforementioned point.
One lender got caught in the trap of having a long time positive relationship with the father, and thinking that the same would occur with his son. First, the son did not disclose on his financial statements that he owed the local cooperative $77,000. With a push by management to increase loans, the lender thought there would be no problems because the son would have the same personality traits of his father.
Boy, was he wrong! The customer started experiencing cash flow pressures and the cooperative sued the son for the $77,000. Despite conducting regular collateral inspections, the banker indicated when things became difficult, additional probing found the livestock were suffering from malnutrition. The lender in this case lost over $70,000 on this loan.
It was apparent in this case that the father had not taught his son sound financial management. Perhaps he did, but the son was not a “chip off the old block” and did not communicate properly with the lender. Cases like these result in more scrutiny being placed on all customers. The regulatory agencies are stressing more documentation on inspections and more paperwork to follow up on these inspections.
No, the son was not a “chip off the old block” and has created issues and suspicion amongst others in the area because of his careless credit management.
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 firstname.lastname@example.org.