Many of you who are renewing lines of credit and seeking mortgage or intermediate-term credit are noticing concern among your lenders. Yes, if you are a livestock producer and your lender is financing that industry, the pressure is on. Even those in the grain industry, which has not faced downward pressure, will notice an occasional twinge of concern with the lender. What is going on?
First, the state and federal bank examiners along with FCA, if it is a farm credit institution, are out in full force. This is part of a knee-jerk reaction as a result of the housing and commercial lending crisis. Many examiners are brand new and frequently go by the book, so if your credit file does not have enough information or proper documentation, the lender may be called to the carpet. The bottom line is that you as a producer will need to provide and validate your information. If you become upset about the increased paperwork, do not expect to find easy credit down the road. Credit underwriting standards are becoming much more conservative, requiring increased accountability and documentation.
Next, many of your bankers are being assessed a one-time fee by the FDIC, the Federal Deposit Insurance Corporation. This fee must be paid three years in advance, hindering profits at local banks.
If you are a customer who continues to show tax losses, you better beware. Many lenders have told me that examiners are putting these credits on a watch list even if they show paper profits when tax records are adjusted for inventory, receivables and prepaid expenses.
Also, many lenders are bogged down with problem credits, which are no fun. If you have a problem, come organized with a solution in mind. If not, still be organized with an array of solutions and options. Finally, don’t be afraid to thank your lender for the relationship if they go the extra mile. Sometimes credit is more than the lowest price.
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 sullylab@vt.edu.