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How to ask your lender for money when you need it

Having a business plan that tells your farm’s story increases your chance of success with lenders

How to ask your lender for money when you need it

In the first article in this series, I introduced several options available to farmers experiencing financial difficulties. I advised farmers to address financial issues sooner rather than later and not to lay blame on anyone or anything (like the weather). In the second article, I presented an example of using debt restructuring and asset sales to address a farm financial issue. In this article I will outline how to prepare a request for financing for a lender — this is usually called a business plan.

Lenders know financial problems will occur as a part of normal business. They want to know how the farmer in difficulty will address the situation. A financially sound restructuring plan usually impresses lenders and will give you a “leg up” over other people that do not use that tool. A business plan will also give you a good introductory instrument for other lenders in case your present lender no longer wishes to deal with you.

There are two major parts to the business plan: the financial analysis and a narrative. The narrative provides details about the farm operation, such as what the farmer or farmers are trying to achieve and what is actually happening in the financial analysis versions. I use ABA (Agricultural Business Analyzer) from Alberta Agriculture and Forestry for the financial analysis. ABA is a template for an Excel spreadsheet. You can find and download ABA by typing “Alberta, agriculture and ABA” into Google.

ABA is quite comprehensive. It starts with an opening net worth statement and then asks for projections (income and expenses) for the next 12 months. It concludes with a cash flow summary (month by month), financial ratios and a projected net worth statement at the end of the 12-month period. In a nutshell, it provides lenders most of the financial information they need about your operation, so some sort of analysis along these lines is a basic requirement for a lender.

When I’m using ABA, I first prepare a base scenario that shows the existing operation with no changes. Then I prepare a second scenario including the possible changes, so I can show “before” and “after” situations.

Farm business narratives

A narrative is a valuable supporting document to go along with financial information. Here is the outline I use for farm business narratives:

  • Cover page
  • Table of Contents
  • Executive Summary: one page summary that the lender can read in five minutes or less
  • Background: history of the farm, farm size, legal structure, staff, etc.
  • Purpose: issue and request
  • Strategic Plan: your business and personal goals
  • Enterprises: a more detailed look at your business, such as cropping plans
  • Marketing: information such as who makes decisions, and whether you use forward pricing)
  • Risk Management: plans for events such as fire, liability, crop disasters, disability
  • Financial Highlights (ie. business ratios): data from the before and after scenarios
  • Action Plan: what you plan to do to address your concerns
  • Financing Request
  • Professional Advisors: such as lawyer, accountant, nutritionist, crops advisor, business consultant

It’s a good idea to send a copy of your business plan to the prospective lender when you make your appointment. That way they have a chance to look it over before your interview and may be able to give you a tentative opinion if they are interested in working with you. It is unrealistic to plop the document on the lender’s desk and expect an immediate response. In any event, it is likely to take several weeks, before you get an official response, so the sooner you start the better.

Hiring a farm financial advisor to help you to prepare the business plan may be a good idea if you are not inclined to do this type of “bookwork” yourself. The Canadian Association of Farm Advisors (CAFA) has people that can help you.

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