Commercial ag bankers are in the business of making loans. But not just any loans. They want to make good loans. A good loan is somewhat subjective, but there are many factors that lenders evaluate to help them decide if you will be able to pay back both the principal and the interest, as well as maintain a mutually profitable, long term business relationship

Goeller, Dave

English

UNL | Libraries

University of Nebraska - Lincoln
DigitalCommons@University of Nebraska - Lincoln
Cornhusker Economics Agricultural Economics Department
10-14-2015
Working With Your Banker
Dave Goeller
University of Nebraska-Lincoln
Follow this and additional works at: http://digitalcommons.unl.edu/agecon_cornhusker
Part of the Agricultural Economics Commons
This Article is brought to you for free and open access by the Agricultural Economics Department at DigitalCommons@University of Nebraska -
Lincoln. It has been accepted for inclusion in Cornhusker Economics by an authorized administrator of DigitalCommons@University of Nebraska -
Lincoln.
Goeller, Dave, "Working With Your Banker" (2015). Cornhusker Economics. 805.
http://digitalcommons.unl.edu/agecon_cornhusker/805
agecon.unl.edu/cornhuskereconomics 
  Cornhusker Economics 
Working With Your Banker 
 
It is the policy of the University of Nebraska–Lincoln not to discriminate based upon age, race, 
ethnicity, color, national origin, gender-identity, sex, pregnancy, disability, sexual orientation, 
genetic information, veteran’s status, marital status, religion or political affiliation.  
 
 
Commercial ag bankers are in the business of 
making loans.  But not just any loans.  They 
want to make good loans.  A good loan is some-
what subjective, but there are many factors that 
lenders evaluate to help them decide if you will 
be able to pay back both the principal and the 
interest, as well as maintain a mutually profita-
ble, long term business relationship.   
Evaluating a Potential Borrower 
Collateral   
Most bankers will insist on an annual Balance 
Sheet and, if available, a series of past Balance 
Sheets to help them determine the assets that 
are available to secure the loan.  If for some 
reason the payments are not made, what as-
sets can the lender pursue to recapture the 
principal, interest and liquidation costs?  Col-
lateral value is impacted by quantity, quality, 
marketability and condition.  Lending institu-
tions have slight differences in how collateral 
impacts a loan request, but all lenders consid-
er very closely the collateral value and its rela-
tionship to the loan amount.  The current cli-
mate in Nebraska agriculture creates some-
what of a challenge in that nearly all forms of 
collateral e.g., land, crops, used machinery, 
livestock and even non-farm investments 
such as stocks are currently in a softer posi-
tion than was the case a year or two ago.   
 
Younger producers may find themselves in a 
situation   where  the  lender   requests  a  co-
October 14, 2015 
Market Report  Year 
Ago  4 Wks Ago   
Livestock and Products, 
Weekly Average          
Nebraska Slaughter Steers, 
35-65% Choice, Live Weight. . . . . .  .  160.50  138.27  126.88 
Nebraska Feeder Steers, 
Med. & Large Frame, 550-600 lb. . . . .  286.59  241.00  212.77 
Nebraska Feeder Steers, 
Med. & Large Frame 750-800 lb. . .. .  236.51  214.92  196.33 
Choice Boxed Beef, 
600-750 lb. Carcass. . . . . . . . . . . . . .  238.19  238.45  203.67 
Western Corn Belt Base Hog Price 
Carcass, Negotiated. . . . . . . . . . . . . ..  108.32  66.12  71.15 
Pork Carcass Cutout, 185 lb. Carcass 
51-52% Lean. . . . . . . . . . . . . . . . . . . .  121.45  84.61  87.02 
Slaughter Lambs, wooled and shorn, 
135-165 lb. National. . . . . . .  164.00  154.79  159.30 
National Carcass Lamb Cutout 
FOB. . . . . . . . . . . . . . . . . . . . . . . . . . .  374.30  359.13  358.99 
Crops, 
Daily Spot Prices          
Wheat, No. 1, H.W. 
Imperial, bu. . . . . . . . . . . . . . . . . . . . .  4.90  4.02  4.20 
Corn, No. 2, Yellow 
Nebraska City, bu. . . . . . . . . . . . . . .  .  2.75  3.59  3.48 
Soybeans, No. 1, Yellow 
Nebraska City, bu. . . . . . . . . . . . . .. . .  8.42  8.69  8.16 
Grain Sorghum, No.2, Yellow 
Dorchester, cwt. . . . . . . . . . . . . . . . . .  4.95  5.96  5.95 
Oats, No. 2, Heavy 
Minneapolis, Mn, bu. . . . . . . . . . . . . . .  3.62  2.85  2.60 
Feed          
Alfalfa, Large Square Bales, 
Good to Premium, RFV 160-185 
Northeast Nebraska, ton. . . . . . . . . . .  195.00  160.00  180.00 
Alfalfa, Large Rounds, Good 
Platte Valley, ton. . . . . . . . . . . . . . . . .  90.00  82.50  75.00 
Grass Hay, Large Rounds, Good 
 Nebraska, ton. . . . . . . . . . . . . . .. . . .  87.50  82.50  77.50 
Dried Distillers Grains, 10% Moisture 
Nebraska Average. . . . . . . . . . . . . . . .  115.00  137.50  116.25 
Wet Distillers Grains, 65-70% Moisture 
Nebraska Average. . . . . . . . . . . . . . . .  40.00  46.25  49.50 
 ⃰  No Market          
signature from a parent or a more established pro-
ducer.   Although this may be a quick fix for a loan 
that is short on collateral, it may become a very 
costly band aid if conditions worsen, potentially 
risking the assets and financial well-being of the 
person who provided the co-signature. 
 
Cash flow 
 
A monthly cash flow plan that is accurately pre-
pared will be required by most lenders as well.  
Many producers view this as a busy work assign-
ment to please their lender but the cash flow can be 
a very valuable management tool for the farmer as 
well.  Through close examination of all operating 
expenses, many times producers can identify ways 
to improve their efficiency.  Sometimes it is also 
possible to lower the maximum needed amount of 
credit by simply shifting the timing of sales and/or 
purchases.  Lower loan amounts are less risky and 
therefore may improve the chance of financing.  
Most of the information needed to estimate a cost 
of production will be present in the cash flow.  
Knowing how much it costs to raise a bushel of 
grain or produce a pound of beef can be very help-
ful when making a marketing plan. 
Credit Score 
 
Most lenders will access one or all three credit re-
porting services to run a credit check on an indi-
vidual and their spouse before approving a loan.  
The credit report will show all loans and loan activ-
ity and develop a credit score for all borrowers.  
Credit card debt, department store charge ac-
counts, loans on cars, boats, RV’s etc. will be item-
ized.   A credit score is developed for each borrow-
er.  Although each of the credit reporting services 
has a slightly different way tof calculating the credit 
score, most will factor in late or overdue payment 
history, loan/available credit ratio, recent loan and 
credit card applications.  Using traffic light symbol-
ism, if your credit score is 600 or below your lender 
will likely interpret that as a red light warning and 
put on the brakes on your loan application; if your 
credit score is 600–700, most lenders will view that 
as a yellow light and use some caution but still pro-
ceed with loan approval;   if the credit score is over  
700, lenders will view that as a green light and 
move to loan approval.   
 
Character 
 
This is obviously a highly subjective criteria for 
loan approval; however, most lenders either 
formally or informally consider the character of 
the borrower when evaluating loan approval.  
Factors such as standing in the community, sta-
tus and reputation may sway an otherwise mar-
ginal application.  Character is not easily con-
verted to a numeric value and as we see more 
centrally owned banks and less community 
owned banks, the character of the borrower is 
less important than a decade or more ago. 
 
Communication 
 
Lenders are looking for a long, solid, mutually 
profitable relationship.  Both parties will benefit 
if a great line of communication is established 
and cultivated.  Discuss long range plans with 
your lender.  Needs for expansion or changes in 
loan amounts should not come as a surprise.  
Discuss your Risk Management Plan.  How will 
you use insurance or the Government Farm 
Program safety nets?  What about your Market-
ing Plan?  Will there be a need for margin 
money?  Hedging accounts?  Remember, how-
ever, that this is your business to run and man-
age; and although communication with the 
lender is essential, a good lender will allow you 
to make the essential management decisions 
and will not attempt to run your business.    
 
 
 
Dave Goeller 
Transition Specialist 
Department of Agricultural Economics 
University of Nebraska 
dgoeller2@unl.edu 
402 472 0661 


Working With Your Banker

DigitalCommons@University of Nebraska

University of Nebraska - LincolnDigitalCommons@University of Nebraska - LincolnCornhusker Economics Agricultural Economics Department10-14-2015Working With Your BankerDave GoellerUniversity of Nebraska-LincolnFollow this and additional works at: http://digitalcommons.unl.edu/agecon_cornhuskerPart of the Agricultural Economics CommonsThis Article is brought to you for free and open access by the Agricultural Economics Department at DigitalCommons@University of Nebraska -Lincoln. It has been accepted for inclusion in Cornhusker Economics by an authorized administrator of DigitalCommons@University of Nebraska -Lincoln.Goeller, Dave, "Working With Your Banker" (2015). Cornhusker Economics. 805.http://digitalcommons.unl.edu/agecon_cornhusker/805agecon.unl.edu/cornhuskereconomics   Cornhusker Economics Working With Your Banker  It is the policy of the University of Nebraska–Lincoln not to discriminate based upon age, race, ethnicity, color, national origin, gender-identity, sex, pregnancy, disability, sexual orientation, genetic information, veteran’s status, marital status, religion or political affiliation.    Commercial ag bankers are in the business of making loans.  But not just any loans.  They want to make good loans.  A good loan is some-what subjective, but there are many factors that lenders evaluate to help them decide if you will be able to pay back both the principal and the interest, as well as maintain a mutually profita-ble, long term business relationship.   Evaluating a Potential Borrower Collateral   Most bankers will insist on an annual Balance Sheet and, if available, a series of past Balance Sheets to help them determine the assets that are available to secure the loan.  If for some reason the payments are not made, what as-sets can the lender pursue to recapture the principal, interest and liquidation costs?  Col-lateral value is impacted by quantity, quality, marketability and condition.  Lending institu-tions have slight differences in how collateral impacts a loan request, but all lenders consid-er very closely the collateral value and its rela-tionship to the loan amount.  The current cli-mate in Nebraska agriculture creates some-what of a challenge in that nearly all forms of collateral e.g., land, crops, used machinery, livestock and even non-farm investments such as stocks are currently in a softer posi-tion than was the case a year or two ago.    Younger producers may find themselves in a situation   where  the  lender   requests  a  co-October 14, 2015 Market Report  Year Ago  4 Wks Ago   Livestock and Products, Weekly Average          Nebraska Slaughter Steers, 35-65% Choice, Live Weight. . . . . .  .  160.50  138.27  126.88 Nebraska Feeder Steers, Med. & Large Frame, 550-600 lb. . . . .  286.59  241.00  212.77 Nebraska Feeder Steers, Med. & Large Frame 750-800 lb. . .. .  236.51  214.92  196.33 Choice Boxed Beef, 600-750 lb. Carcass. . . . . . . . . . . . . .  238.19  238.45  203.67 Western Corn Belt Base Hog Price Carcass, Negotiated. . . . . . . . . . . . . ..  108.32  66.12  71.15 Pork Carcass Cutout, 185 lb. Carcass 51-52% Lean. . . . . . . . . . . . . . . . . . . .  121.45  84.61  87.02 Slaughter Lambs, wooled and shorn, 135-165 lb. National. . . . . . .  164.00  154.79  159.30 National Carcass Lamb Cutout FOB. . . . . . . . . . . . . . . . . . . . . . . . . . .  374.30  359.13  358.99 Crops, Daily Spot Prices          Wheat, No. 1, H.W. Imperial, bu. . . . . . . . . . . . . . . . . . . . .  4.90  4.02  4.20 Corn, No. 2, Yellow Nebraska City, bu. . . . . . . . . . . . . . .  .  2.75  3.59  3.48 Soybeans, No. 1, Yellow Nebraska City, bu. . . . . . . . . . . . . .. . .  8.42  8.69  8.16 Grain Sorghum, No.2, Yellow Dorchester, cwt. . . . . . . . . . . . . . . . . .  4.95  5.96  5.95 Oats, No. 2, Heavy Minneapolis, Mn, bu. . . . . . . . . . . . . . .  3.62  2.85  2.60 Feed          Alfalfa, Large Square Bales, Good to Premium, RFV 160-185 Northeast Nebraska, ton. . . . . . . . . . .  195.00  160.00  180.00 Alfalfa, Large Rounds, Good Platte Valley, ton. . . . . . . . . . . . . . . . .  90.00  82.50  75.00 Grass Hay, Large Rounds, Good  Nebraska, ton. . . . . . . . . . . . . . .. . . .  87.50  82.50  77.50 Dried Distillers Grains, 10% Moisture Nebraska Average. . . . . . . . . . . . . . . .  115.00  137.50  116.25 Wet Distillers Grains, 65-70% Moisture Nebraska Average. . . . . . . . . . . . . . . .  40.00  46.25  49.50  ⃰  No Market          signature from a parent or a more established pro-ducer.   Although this may be a quick fix for a loan that is short on collateral, it may become a very costly band aid if conditions worsen, potentially risking the assets and financial well-being of the person who provided the co-signature.  Cash flow  A monthly cash flow plan that is accurately pre-pared will be required by most lenders as well.  Many producers view this as a busy work assign-ment to please their lender but the cash flow can be a very valuable management tool for the farmer as well.  Through close examination of all operating expenses, many times producers can identify ways to improve their efficiency.  Sometimes it is also possible to lower the maximum needed amount of credit by simply shifting the timing of sales and/or purchases.  Lower loan amounts are less risky and therefore may improve the chance of financing.  Most of the information needed to estimate a cost of production will be present in the cash flow.  Knowing how much it costs to raise a bushel of grain or produce a pound of beef can be very help-ful when making a marketing plan. Credit Score  Most lenders will access one or all three credit re-porting services to run a credit check on an indi-vidual and their spouse before approving a loan.  The credit report will show all loans and loan activ-ity and develop a credit score for all borrowers.  Credit card debt, department store charge ac-counts, loans on cars, boats, RV’s etc. will be item-ized.   A credit score is developed for each borrow-er.  Although each of the credit reporting services has a slightly different way tof calculating the credit score, most will factor in late or overdue payment history, loan/available credit ratio, recent loan and credit card applications.  Using traffic light symbol-ism, if your credit score is 600 or below your lender will likely interpret that as a red light warning and put on the brakes on your loan application; if your credit score is 600–700, most lenders will view that as a yellow light and use some caution but still pro-ceed with loan approval;   if the credit score is over  700, lenders will view that as a green light and move to loan approval.    Character  This is obviously a highly subjective criteria for loan approval; however, most lenders either formally or informally consider the character of the borrower when evaluating loan approval.  Factors such as standing in the community, sta-tus and reputation may sway an otherwise mar-ginal application.  Character is not easily con-verted to a numeric value and as we see more centrally owned banks and less community owned banks, the character of the borrower is less important than a decade or more ago.  Communication  Lenders are looking for a long, solid, mutually profitable relationship.  Both parties will benefit if a great line of communication is established and cultivated.  Discuss long range plans with your lender.  Needs for expansion or changes in loan amounts should not come as a surprise.  Discuss your Risk Management Plan.  How will you use insurance or the Government Farm Program safety nets?  What about your Market-ing Plan?  Will there be a need for margin money?  Hedging accounts?  Remember, how-ever, that this is your business to run and man-age; and although communication with the lender is essential, a good lender will allow you to make the essential management decisions and will not attempt to run your business.       Dave Goeller Transition Specialist Department of Agricultural Economics University of Nebraska dgoeller2@unl.edu 402 472 0661 

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