Five Tips to Become a Better Borrower

Building a strong relationship with your lender can be a key component of the long-term success of your business. A solid relationship will help your lender be able to better assist you in both good times and bad. Here are five ways to position yourself as a confident borrower.

1. COME PREPARED FOR YOUR MEETINGS

Before you meet with your lender, spend some time preparing for the meeting. This will help both you and the lender get the most value out of the meeting. Preparing the following items for your first meeting would be a great start:

• An itemized list of startup expenses

• A simple business plan, including amounts for what you expect to produce, projections for the income and expenses of the operation, and how you plan to sell your product

• Your financials: tax returns, notes of account balances, inventory, and other items that will aid in creating a balance sheet

• A list of questions for your lender that you’d like to discuss

2. OFFER A DOWN PAYMENT

Saving up some extra cash can be helpful when pursuing a new investment. Depending on the loan request and financial position of the borrower, a down payment is not always necessary. But in some instances, it could be the difference in getting a loan. Offering a down payment shows your lender that you’re committed and willing to put some ‘skin in the game’. This is most helpful to your loan request if it’s your own cash, rather than a private loan from a family member. Even if the down payment is not necessary, having extra cash on hand to create some cushion on your operating expenses will help you succeed.

3. PAY ON TIME

Once you’ve received a loan, one of the best things you can do to show your lender you’re a valuable customer is to pay on time every month. By paying on time, you show your lender that you are responsible, reliable, and financially strong. If your lender sees that you regularly pay late, they are likely to doubt your commitment or ability to repay existing and future loans. There are various consequences to paying late; you may be charged a late fee according to the terms of your loan, and if your lender reports to the credit bureau, your credit report will show payments over 30 days past due. Consistently making payments on time is the best way to improve your credit score and your credit reputation within your financial institution.

4. REVOLVE YOUR LINE OF CREDIT

You have probably heard your lender say that they expect you to revolve your line of credit regularly. Revolving the line means to pay the balance to zero. Lenders look for this to happen each operating cycle at a minimum – once per year for certain operations, and more often for others (for example, a line of credit used for independent broiler flocks). Lines of credit are intended to be used for operating expenses, so naturally it makes sense to repay the loan with the proceeds of the operating cycle. A line that isn’t repaid within the operating cycle indicates a negative cash flow situation, which isn’t sustainable long-term. When a line of credit is not regularly revolved and carries a balance near the limit for long periods of time, the lender starts to doubt the borrower’s financial health. In contrast, a line that is used sparingly or that is regularly revolved demonstrates to the lender that the borrower is financially strong.

5. COMMUNICATE PROACTIVELY

Things don’t always go as planned. If you find yourself struggling financially, one of the best ways to maintain a good relationship with your lender is to communicate proactively. Let your lender know if you’re falling behind or struggling to revolve your line of credit. The lender will do their best to work with you on a solution. The sooner you begin the discussion, the more options there will be available to you. If you wait until the last minute to reach out for help, options may be more limited.

If you have any questions about these tips to become a better borrower, or are ready to meet with a lender to discuss your financing options, give us a call at 888.339.3334.

Article written by Andrew Stutzman, Farm Credit Lending Manager