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Do better with your banker

Just because interest rates are low doesn’t mean that we shouldn’t 
negotiate for the lowest rates. Try these tips

Keep in mind, banks are not in the business of charity,” Stephen Foerster told a room filled with about 35 farmers. Foerster is a professor of finance at Richard Ivey School of Business, and this is Grower University.

The people in the room were leading farmers from across Canada. They travelled to London, Ontario to take part in a three-day educational seminar, the tenth annual Grower University offered by Syngenta Canada.

In this session, “Leveraging Your Financials,” Foerster explained what bankers are looking for when they decide whether or not to give farmers a loan. Foerster pointed out three factors:

1. External factors. These are external factors that farmers can’t control — things like international markets, commodity prices, exchanges rates and economic outlooks.

2. Internal factors. These factors are internal to your farm — your farm’s strategy, and your ability to manage your specific risk.

3. Your financial analysis. This is where Foerster got into the math. He had the class crunching financial numbers and even doing some algebra.

Foerster says, ”Overall, the banks are looking for strong financial health. They’re looking for a plan. That you know where it is you want to go.”

Tips from the farm

The farmers in the class had some tips of their own to share with the group when it came to dealing with bankers:

“Don’t be afraid to change banks,” one farmer offered. “Our rates have dropped a quarter of a per cent each time we’ve switched.”

Several farmers agreed that it’s always important to at least ask your banker for a lower rate. One said that, on his farm, when they want to borrow money for a major purchase they put out a tender and ask several local banks to reply with rates and terms.

One farmer told the class that his focus is not only to negotiate for a low rate, but also to convince the banker to take a minimum amount of collateral to secure the loan.

Foerster reminded the class that when you go looking for a loan, your banker always has more information than you. In fact, she’s probably seen the financial statements belonging to several of your competitors (your neighbours). While this isn’t always encouraging, it does mean that your banker is a good source of information if you’re looking for industry benchmarks to compare against your farm’s financial ratios.

At the end of the session, Foerster offered one last tip. “Keep your banker informed, whether it’s good news or bad news. Nobody likes surprises.” †

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