The borrower-lender relationship is a two-way street. Both parties are trying to reach the same goal from a different direction. Both want to ensure the long-term viability of their businesses, and both have high expectations of the other.
Alabama Ag Credit’s loan officers are known as relationship managers as they maintain not only a loan portfolio but are truly invested in making sure your needs are met. So, how do we make sure both you and your relationship manager are on the same page while also ensuring the process is as simple and easy as it can be? Knowing what to look for when choosing a lender and what they’ll be looking for in you can help to streamline the process and prepare you for your relationship manager meeting.
How to Choose a Relationship Manager and Lender
There’s more to a lender than their interest rates. Working with a relationship manager and lender you can trust and who truly understands your business and financial needs will make the whole process much easier and more enjoyable.
Set yourself up for success by choosing the right lender for you and your situation by considering what they can offer you. From the very first meeting, you should evaluate your financial team based on the following characteristics:
1. SKILLS & QUALITIES
- Do they have a stake and/or interest in your industry?
- Are they forward-thinking, or do they keep looking back?
- Do they understand your business and all the associated challenges?
- Do they ask the right questions to get to know your business?
- What are some characteristics of their current borrowers?
- Are they able to meet your current and future borrowing needs?
- What are their limitations?
- Will they be able to grow with you and your business?
- Will they adapt to your schedule and make meetings accessible to you?
3. PRODUCTS & SERVICES
- Do they take a customized approach?
- Do they offer competitive rates and flexible terms?
- What are the conditions of their loan offerings?
- What services do they offer aside from loan products that you may benefit from?
- Are there special lending options for young, beginner, and/or small farmers?
4. PEOPLE & LENDING PHILOSOPHY
- Do they take a team or individual approach to loan services?
- Are their interactions transactional, or do they build long-term relationships?
- Do they offer stability in a changing environment?
- Do they have industry knowledge?
- Do they allow you to evaluate options and alternatives?
- Do they value confidentiality and ethics?
5. LONG-TERM PRESENCE IN AGRICULTURE
- Will they provide support during both prosperous and challenging times?
- Are they committed to the industry and its people?
- What is the financial health of the institution?
- Do they invest in their customers? How so?
That may seem like a lot of questions to think about, but it’s important that you work with a lender you trust, considering the amount of money on the line and the length of time you’ll be working together. This will be a long-term commitment, so you should look at the relationship in terms of your situation today as well as what it may evolve into in the future. Do your due diligence and look at all the factors before choosing a relationship manager.
Things a Relationship Manager Will Look for When You Apply for a Loan
Don’t feel bad about scrutinizing your relationship manager, because they’ll be doing the same thing to you! It’s their job to make good lending decisions on behalf of the company, including to whom they lend money. As you might expect, the relationship manager will assess your credit factors to decide whether lending to you will be a good long-term decision. What’s important to them in a borrower will be different than what’s important to you in a lender. Here are some of the things a loan officer will look at when considering your application for a loan:
1. FINANCIAL INFORMATION & DOCUMENTATION
- Balance sheet, including assets, liabilities, and monthly payments
- Income statement
- Cash flow projections (budget)
- Tax returns—both individual and corporate (when applicable)
2. WRITTEN BUSINESS PLAN (IF APPLICABLE)
Don’t worry—we’ve created a basic template that goes through everything you need to include in your farm business plan.
3. PERSONAL CONSUMER CREDIT CHECK
- Verifies certain balance sheet information
- Credit history
4. FICO CREDIT SCORE
- Ideally between 675 and 850
- Factors that impact credit score (i.e., types of credit, payment history, amounts owed, length of credit history, new credit requests).
If you’re not within the ideal range or have concerns about your credit, check into some ways you can improve your credit score to make you a better applicant.
The Most Common Mistakes Made Obtaining a Loan
Many people worry they’ll make a mistake when obtaining a loan, especially if they’re new to the process. We’ve gathered all the most common mistakes borrowers make when obtaining a loan, so you know what to avoid and where to be careful:
- Not Listening to your Relationship Manager
- Falling into the 0% Financing Trap
- Last-minute Lending
- Overestimating Your Assets
- Looking Away from Liabilities
- Focusing only on Rates
It’s great to do your own research, but don’t assume that the answers you’ve found are the only options, especially if you’ve never taken out a loan before. You may want to cut straight to the chase and tell your relationship manager how much you need and what terms you are looking for, but rushing in can cause you to miss out on information. Instead, share your new knowledge with your relationship manager and be open to their suggestions. They have a lot of experience and may be able to point out better options you’ve missed. After all, one of the great benefits of working with a relationship manager is that they have so much wisdom to share.
If it sounds too good to be true, it probably is. Read the fine print…then read it again. These 0% financing programs usually come with a minimum required amount, a hefty interest rate, and some tricky stipulations. Don’t be fooled!
Don’t wait until the last minute to take out a loan or you’ll be left with very few options. The same goes for talking to your lender. Submitting, reviewing, and processing a loan application takes time. Being proactive and punctual will allow you to set more realistic expectations and give you more flexibility to weigh your options and make the right choice.
Anyone with a business should consider their “exit strategy,” or what they’ll do if their finances go south. No one likes thinking about the worst-case scenario, but that’s the only way to be prepared. Relationship Managers will want to look over your exit strategy when working with you too, so be prepared to walk through it. When doing so, they’ll evaluate both your debt repayment ability and your equity in the business to assess what level of risk you may face. If you overstate your assets significantly, you’ll have a less accurate plan and fewer options if you end up facing adversity. So, make sure you do the math correctly and stay humble. Underestimating what you own might be better than overestimating since it’s better to have wiggle room than no room to breathe at all.
A relationship manager will make loan structure and repayment term recommendations based on your expected cash flow. If you don’t identify all your liabilities and repayment obligations, your relationship manager won’t be able to give you accurate suggestions.
If you’re only in it for the rate, you could be signing yourself up to work with a lender that doesn’t completely understand your operation or industry, which could lead to fewer options and worse returns. Likewise, if the interest rate is all your lender cares about, your agricultural business could be in a world of trouble if the market turns. So, be wary of this perspective.
Oftentimes, working with a lender you can trust and who knows their stuff is more valuable than a lower interest rate. Agriculture operations, in particular, are unique businesses with specific needs. Without adequate knowledge, many lenders won’t be able to support you during the process or give you the best suggestions. Working with a dedicated farm and land lender like Alabama Ag Credit will ensure that you have a financial team that knows their stuff.
When you know what your lender is looking for in a loan applicant and what you should look for in a lender, the task becomes much easier. This is especially important in the agricultural industry, which has different needs and faces greater volatility than other types of businesses. When it comes to getting a loan for your agricultural operation, preparation is key to showing your lender the viability of your dream operation so it can be brought to fruition.
Interested in learning more about the lending process? Ready to speak with a loan officer? Give us a call or fill out our Contact Us form. We’re happy to meet you in the office or at your kitchen table. Whatever works for you!