Do you feel like your lender is being tough on you? Welcome to the new world of dairy industry finance. I have seen some of the most extreme lender responses over this year, some that even supersede decisions made in the 20-month downturn of 2002 to 2003. Perhaps, these same lenders haven’t forgotten the implications of the last downturn. Maybe this downturn hit some people more quickly than the last one. However, I have observed two distinct and sometimes extreme reactions from lenders during the past year.
The best dairy bank lenders have laid out specific guidelines for my clients and provided them with sufficient operating capital to keep their dairies running smoothly during this transition time. This has allowed them to continue daily operations without worrying about whether their lines of credit will be renewed and has also allowed them to maintain positive relationships with their vendors. This ability to maintain operations in an ongoing and positive manner can be crucial to the success of any business.
On the other extreme, I have seen some lenders drag out the renewal process for so long that they have actually weakened the client even further. Then, when the bank finally did complete the renewal process, the restrictions and reporting requirements were so onerous that the clients barely had enough money or time available to run their business! Additionally, these same lenders acted as if they were doing their clients a favor by completing the renewal. Allowing for a herd loan with a 65% today loan-to-value (LTV) is not exactly my idea of “thinking outside the box.” Limiting this client to a level of 62% LTV on their herd loan, particularly in a year like 2009, was a clear demonstration that this lender was not a long-term player in the industry. In spite of this, we still need to move forward in a positive manner.
As a dairy producer, what should you do now? How can you position yourself to survive this extended downturn in milk prices?
Please join me in following his advice. You’ll be glad you did!