TELLING A COMPLETE STORY IS MORE THAN JUST NUMBERS

Whether you’ve worked with me, another broker or contacted your bank directly, you know new loans equal loads of paperwork.

 And questions. So many questions.

In this blog, I want to explain why I ask so many questions and why it’s more than just numbers. I promise you I’m not being a busybody. I’ll explain what a bank manager or lending officer wants to know and why it’s important.

Knowledge is power

The simple fact is, having the right information to present to your bank helps me to create a compelling story about your farm or business.

The right information is more than just your bank records, spreadsheets and the reporting from your financial software. Sure, numbers and data are important, but your business is much more than numbers on paper. Having a complete story using all the information, will help the bank see why lending to you is a safe and smart decision.

History of your business – the journey

We need to tell the bank about your story to date. This will include things like how long you’ve been farming, who is involved and how you manage the farm. Do you have employees or rely on outside contractors?

Is it a family farm that has been operating for generations or are you the new owners? How much land do you have? What do you farm? Is it crops or livestock?

If you’ve recently purchased property or land, the bank will want to know when this happened and how much you paid.

They also want to know about your debt. Is it from succession restructure, land purchase, drought or something else?

Showcase your expertise or niche

Next up, we want to tell the bank all about your expertise. We’ll show them what you’re good at and explain what sets you apart from other businesses. Are you operating in a niche market and selling commodities outside of the ‘normal’ market?

For example, I have a client that sells their lambs directly to the butcher. This allows them to command a higher price by cutting out the ‘middle-man’. I have another client that supplies straw to mushroom farms, a great way to value add and manage heavy stubble loads.

Address past and potential challenges

The bank knows running a business is challenging. If you don’t discuss past challenges, the bank is probably going to think you’re hiding something.

You also need to show that you’ve factored future challenges into your business plans and financial projections.

If you can, provide practical examples. Perhaps you’ve been affected by frost in the past. For this reason, you’ve decided to run more sheep, providing another source of income if you lose your grapes or other crop.

Being able to show how you manage risk is important.

Future plans

In most cases, you’re asking for a loan or mortgage that will span several years or even multiple decades. For this reason, the bank needs to know that you’ll be able to keep making payments.

You should include information about succession plans and new family members joining the business (perhaps your children as they finish school or university). Having plans to diversify or expand your operations is also important for the bank.

Financial projections

Having up to date financial records only tells part of the story. You also need to show the bank that you’ve considered your future financial position.

If you’re doing something different, look at creating financial projections for up to 5 years. For business as usual operations, you need at least one year of projections.

Funding needs and how you’ll use them

Now this one probably won’t be a surprise, but when seeking finance from the bank, you need to tell them what you’re planning to use the finance for. You’ll need to explain why you’re not using the funds you might have in the bank or why there’s no other option but to seek a loan.

You’ll also want to demonstrate that you’ve done the research to support your plans. For example, is there demand for that type of product? Can you compete with other producers? Can you back up your costings?

Appreciation

If you’ve worked with me before or read my blogs, you already know that I place a very high value on building and maintaining relationships. Your existing relationships are important. So even if we’re looking at new loan options, I work hard to ensure we maintain a good working relationship with your current bank manager.

Client case study – Existing Bank said No!

One of my most memorable success stories highlights the importance of providing detailed and comprehensive information when seeking approval for a significant investment. 

My clients wanted to purchase a building to house their expanding winemaking business and potentially use some of the space for a cellar door and function centre. Unfortunately, their initial setback came when their application for finance from their existing bank was declined. Rejections in the finance world are not uncommon, but they often stem from a lack of information.

They asked me to assist with a new application and together we developed a case for a new bank to assess. With input from my clients, I prepared a business plan that included:

• financial projections
• market analysis
• competitor information
• a marketing strategy
• analysis of potential challenges

Based on the information provided in the business plan, the new bank approved the loan to purchase the premises so my clients could expand their business. By presenting their case in a more favourable light, I helped them increase their chances of getting approved, turning their dream into a reality.

Conclusion

As I said at the outset, knowledge and information is power. Putting together a complete package that tells your story, and is backed up by data and your financial reports, makes it easier for the bank to say yes to the finance you need.

Over to you

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