If you think your local banker is a fair-weather friend you’re probably right, says a senior lender with Alberta Financial Services Corporation (AFSC).
Banks and other lenders are interested in lending money when times are good, and not interested when times are poor, says Denis Cote, senior lending manager with AFSC, an Alberta Crown corporation lending agency.
“Bankers want to make the most money with the least risk,” he told delegates attending the North American Consulting School (NACS) held recently in Calgary. The reality is that “money flows to the best and the easiest.” The NACS is a conference organized for consultants in a wide range of fields including crop and livestock consulting services.
It is a cold fact of business life that lenders don’t like to deal with industries that have poor economics or are an unknown quantity, he says. Depending on the market cycle lending money to the hog industry, or the soft wood lumber industry, for example, is a tough sell, says Cote. Lenders are also reluctant to loan money to service businesses where there are no real assets, to knowledge-based businesses, to emerging industries (such as ethanol) and to start up businesses that have no track record.
While the final decisions on lending money are largely based on the enterprise and type of industry, rather than the individual client, he says it makes good sense for the farmer or other clients to get to know their local lending officer personally.
“People like to do business with people they like and get along with,” he says. So getting to know your local lending rep, helps them to know and understand you, and know your business, which all helps to add weight and support to a loan application.
HAVE THE RIGHT PAPERWORK
Cote told the conference, to optimize the success of a loan application the farmer or client needs to find out who approves loans at the lending agency, and then find out what that person needs from them.
“Be prepared with what the lender needs,” says Cote. “They need to know who you are, what you do, what you want, how you will pay for it and what pledge of assurance, or collateral, you can offer to support the loan.”
The lender in turn is going to look at your business or industry, your ability to manage that business, your capacity to repay and quality of assurance you can pledge against that loan.
RELAT IONSHIPS MATTER
While banks and other lenders usually have centralized decision-making on loans, he says initially “it is all about relationships.” If your local loans officer has confidence in you and your ability to manage the business and repay “the loans officer is the best person to be your champion” and support your loan application, says Cote.
To maintain the relationship “it is important that you take time to get to know your lender,” he says. Along with making that personal contact it is important to follow through — do what you say you’ll do, don’t produce any surprises, and educate the lender about your business. Cote says lending can be a transient industry — you just get to know your lender and then they transfer somewhere else. Turnover is a reality, so be prepared to start again with the new lending officer.
He says lenders back away from certain industries or certain clients for several reasons. Considering that the lender’s primary industry is to make the most money with the least risk, they tend to steer clear of industries at risk of collapse, avoid clients where they are not making enough money on your loan business; avoid high-maintenance clients, and avoid clients with frequent repayment issues.
Agricultural loan clients need to work harder to make their case with a lender, he says. Agricultural lending has a high knowledge threshold — the lender has to understand the business; agriculture has a lot of variability, and agriculture also has a low return-to-maintenance ratio.
LeeHartisafieldeditorforGrainewsin Calgary.Contacthimat403-592-1964orby emailat [email protected]