Consider these tips before walking into the bank

Apr 18, 2017

Rick Dehod points out some things farmers should note when talking loans

By Diego Flammini
Assistant Editor, North American Content
Farms.com

There’s a list of questions that farmers should be able to answer comfortably before going to their banks to request loans, according to Rick Dehod, a farm financial specialist with Alberta Agriculture and Forestry.

Firstly, can producers convince their business partners the loan is a good idea?

“Quite often we think we have to please the bank but more often we have to convince our business partners that we want to invest their equity and our equity in the purchase and leverage from the bank,” Dehod said on Alberta Agriculture’s Call of the Land radio program.

Do they know the amount of money they’re asking for?

“It’s important to decide how much cash you’re going to put in and how much you’re going to borrow because that’s going to affect your working capital position,” says Dehod. “You have to have a plan to see what type of down payment or security you’re going to provide so you don’t put them farm into a weak working capital position.”

Rick Dehod
Photo: LinkedIn

Does the farmer know how long they want/need the money for?

“Quite often we get quite aggressive in the repayment amortization and trying to pay things off quickly, but that can limit our working capital,” Dehod said. If producers experience a fall this year similar to 2016 and still have crops in the field, they don’t want to be left with large payments, he added. “We have to match the amortization with the life of the asset."

How is the farmer going to repay the loan?

“Can the farm service the additional debt?” said Dehod. “Past income and expenses is a good benchmark to determine future repayment ability. Doing a sensitivity analysis by decreasing your income by 10 per cent and increasing your expenses by 10 per cent will give you an indication of your repayment risk and ability to make your payments should things not go as planned.”

Farmers should also be able to identify alternative sources to repay the loan, says Dehod.

Farms.com has reached out to Dehod for more insight into loans and other ways farmers can prepare for their bank visits.

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