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September 1, 2015
In agriculture business today, we work with a huge amount of financial responsibilities. Generally, producers do not look forward to appointments with their local lenders or lending institutions. Why is that the case? Probably because lenders require us to provide detailed financial information in order to borrow money. I'm going explain some of these requirements and why lenders need borrowers to provide them.
1. Balance sheets: Most lenders will require a current balance sheet and also the past 3 years' balance sheets. The reason for this is that they want to see what financial growth is typical for the borrower.
2. W-2: If you or your spouse have off the farm wages, then the W-2s will help show what portion of personal expenses are met with non-farm wages.
3. Budgeting plan: A budgeting plan helps the lender see into the future. You need to know your monthly income and fixed expenses. This is an area we need to prioritize and review each month in order to keep current.
4. Tax Returns: Most lenders will require the past three years' tax returns for review.
5. Personal biography: Some institutions like to have a past biography of you and your spouse. Things you describe in this letter would be your education, what type of operation you have and number of years in your current position.
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6. Cash flow: If we are borrowing money from a lender, they want to know where the cash is coming in from to meet the needs of the loan. If financing a new capital purchase what are we going to do different in the future to meet our payments? Cash flow forecasts what our inflow and outflow of capital will be to give us a net cash flow.
7. Business Plan: This plan is your selling point. Lenders don't want to just hear about this plan, they want it in writing. All the information above is considered supporting information. In your business plan you need to state your goals, why you think you can achieve them and lay out your plan for doing so. A business plan is a work in progress; each year it will need to be reviewed and changes made where needed.
The above are examples of what most lenders will require to start processing a loan request. In general, securing a loan is not a quick process. However, if a borrower comes in to the first appointment with the above information, it will speed up the lending process considerably. Also, having this information on hand helps to give producers the confidence and knowledge to make the right financial decision. Now is the time to review your balance sheet and get caught up with your future projections. It is always a good idea to be proactive and prepare yourself for the future. My job with the South Dakota Farm/Ranch Management is to help ranchers/producers collect the data they need to approach their lender to make informed decisions. If you have questions please contact David Koupal at David.Koupal@mitchelltech.edu or call office 605-995-7193 or cell 605-299-6163