Farmers across the Midwest are preparing to make loan requests at the bank. Which category of borrower you fall into will have a direct impact on whether your loan is, or is not approved. Curt Covington of Farmer Mac outlined the four types of borrowers on a recent episode of the Top Producer Podcast. Here they are:
Category 1: You're an acceptable credit risk to the bank. “You’ve got plenty of cash flow, good collateral, good character, so on and so forth,” Covington says.
Category 2: “You’re still a good borrower and you are still a valued customer of the bank, but you've had a hiccup,” Covington explains. The hiccup may require some kind of refinance to gain liquidity. “There's a lot of growers in the Midwest that have had a hiccup given where current commodity prices are,” he says.
Category 3: The borrowers are what we refer to as restructured relationships, Covington says. “The banker might say, ‘you know we think that if we restructure the entire credit and restructure the balance sheet for this customer and help them out, they have a pretty good chance of returning to sustainable operations,’” he explains. In order for something like that to work, the farm’s management team has to prove to the banker that they can execute whatever restructure plan that they have and that that plan will actually work. “In other words, it makes sense in today's current agricultural economy,” he says.
Category 4: For these borrowers, it’s what Covington calls “a total work out situation.” What he means by that is that the banker is attempting to work that relationship out of the bank to go somewhere else or potentially to go into foreclosure.
To learn more about current ag banking trends from Covington, listen to the Top Producer podcast below.