Why do lenders need so much information?

By Scott Elston

When it comes to financing your farming or ranching needs why does your ag lender ask for so much information? Balance sheets, income statements, tax returns, K-1’s, and cash flow forecasts might seem a bit too much. Don’t they know me and my business by now? I’ve done business here for years.

There are several reasons why your lender might seem to have an insatiable appetite for your financials. Here are a few.

1. Your farming or ranching operation has grown. Oftentimes beginning operations’ loans may be relatively small and information needs in relation to your loans are small as well. As your operation and credit needs grow your lender needs more financial information to support increases in loan amounts that help you expand. Good financial information tells a story about you and your business in tangible ways that can make it easier to get you the credit you need.

2. You have experienced adversity. To be asked for more financial information in this situation can feel threatening when you are already feeling the stress of losses on the farm. Yet, providing your lender with detailed financial records for the current year (even though results aren’t favorable), historical records from the past, and your forecasts for the future serve as the foundation for you and your lender to develop a financing strategy to help you through these times.

3. Increased regulation. It is a reality that regulators are requiring financial institutions to obtain more information to support loans. Despite the fact that your credit history is spotless and nothing has changed in your operation, increased regulatory oversight may result in your lender asking for more.

Keep in mind just as good yields on the farm demonstrates your strength as a producer, having good financial information is reflective of your strength as a business manager.

When more information is requested, if it isn’t explained ask why. Understanding the basis for the requests will provide you with important insights and can help you build a long term relationship of trust with your ag lender.

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