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 Tips
to Help Obtain Your Operating Loan
Richard Garrard,
Extension Educator, Farm Financial Management/Livestock, Cassia
County
With spring rapidly approaching it
is time to prepare our selves for obtaining this year’s credit.
Here are five tips in negotiating a financial package with your
lender.
First, as a borrower you must
provide current, accurate financial statements and supporting
records. A current balance sheet with supporting schedules and
inventories is essential. It is a big plus if you know your
ratio’s and there meaning. A record of earnings (usually an
income statement) and a projected cash flow for your business are
also needed. If you are anticipating a major change in your
business, a three- to five-year projected cash flow period may be
required.
A good set of farm records showing
production plans, short and long-range goals, and procedures for
implementation and evaluation will enhance your ability to secure
credit. The time it takes to write a farm business plan will be
impressive to the lender and be of great help in obtaining a loan
or lowering the interest rate. In approaching a new lender, find
out specifically what they want in the way of financial
information.
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Second, arrange credit in
advance. Bankers like budgets (financial plans) and do not like
surprises. Don’t inform your lender of a major decision “after
the fact.” This only results in destroying trust and
credibility and makes future credit more difficult or impossible
to obtain.
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Third, allow your lender time to
review your plans and make suggestions. Many major purchase
decisions are made on the basis of emotion. A lender can be a
source of sound advice and counsel in reviewing your credit
request. Remember, explanation of your goals and plans builds
confidence and trust, and strengthens your working relationship.
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Fourth, inform your lender of
problems and changes. Even the best of businesses may be faced
with adversity that may reduce the ability to repay. Inform
your lender of changes in plans or unforeseen problems that will
interfere with making loan payments. Remember, communication is
the key element in the initial request as well as through-out
the whole credit process.
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Finally fifth, maintain a high
level of integrity. If a lender is expected to be honest and
aboveboard at all time, then the same attribute will be expected
of you, the borrower. Inaccurate information and failure to
honor commitments will jeopardize the borrower-lender
relationship initially and could last a lifetime.
By adhering to these five tips for
obtaining credit, it will help in obtaining your operating loan.
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