It has been interesting to observe recent delays on loan approvals with several of my Clients. Frustrating, yet interesting, since the delays seem to occur for no real good reason.
I understand that all parties, particularly the bank, need to have sufficient, current information to make a good loan decision, but once they have it, why does the approval process take 3-4 weeks? No one’s analysis should take that much time…
Does the borrower benefit from this extended approval process? Not likely, especially when they have vendors who are dealing with uncertainty. This uncertainty will probably not lead to any cost savings. Similarly, it can jeopardize a borrower’s operation by generating doubt about their future.
What if interest rates go up in the interim period, as they have been for the last 18 months? It ends up costing the borrower even more.
At the same time, does the bank benefit if the rates increase? Probably not, because their “cost of funds” will also increase, leaving them with a similar margin. Additionally, whenever a borrower’s operation is negatively impacted, the risk level also increases for the lender.
Finally, if vendors decide to charge higher prices for their products, as we have seen with inflation’s impact these past two years, an operator can be hurt even more on the margin front. The air of uncertainty that is created is never beneficial for anyone. As Winston Churchill stated, “The ultimate sum of the maybe’s is always no.”
So, what are we waiting for? Let’s move forward and make a reasonably sound decision, if you have the information you need, whether it’s a Yes or a No. Loan decisions are not like fine wines. They don’t get better with age. Instead, let’s follow the sage advice of Churchill who also said, “Let our advance worrying become advance thinking and planning.” Let’s move forward, for we have no time to waste.
To assist you with your own financial analysis, I have recently introduced a system to allow you to measure your dairy operation’s cash flow results. I call it the Success Strategies AdvantageTM. It is designed to create a budget for your dairy operation, using numbers for your region of the country. After you input about two dozen “Actual” numbers from your QuickBooks or other accounting system, it will provide you with the following items:
- A Year-to-Date (YTD) Cash Flow Comparison of your operation compared to a budget that is based upon typical numbers for your region of the country.
- It will show you where you may be over or under budget.
- It will provide you with Break-Even Levels for Milk Price/cwt, Feed Expense & Production per cow per day, all useful information for reaching higher levels of profitability, as well as setting your price level coverage through the Dairy Revenue Protection (DRP) and Dairy Margin Coverage (DMC) programs.
- It will also equip you to better understand where you might be over budget and help you to talk with your Team (e.g., Nutritionist, Veterinarian, Financial Consultant & Others) about how to refine your numbers.
Finally, it will give you solid information to share with your banker, showing how you are currently doing and guiding you about future changes or investments that will help you streamline operations.
Let’s take your business to the Next Level!