Banks want to do business with companies with good earnings and a sound financial position. Whether the company is building a new relationship or maintaining an existing one, be prepared to present financial statements dating back three — maybe five years.
“Agriculture not static cash flow, it has boom and bust years and it’s important to be able to articulate the changes and what may have caused or will cause changes in their financial position,” says Mitch Ferree, president, South Indiana City, Regions Bank.
1) Audited financial statements: A qualified or unqualified financial review by a certified public accountant, proves that inventories have been evaluated and appraised while a compiled statement presents information that has not actually been proven.andso be ready to present an indepth review of your company’s financials. Every earning statement has its own formatting, but lenders want to see the basics: a balance sheet that lists the assets, liabilities, net worth; an operating statement, the organization’s income and expenses.
2) Interim financials: Volunteer your company's financials on a monthly basis to demonstrate the company's strong working capital position.
3) Liquidity plan: Banks want to know much working capital your company has, and one way to present that information is with a liquidity plan.
“Working capital is a real key in this business,” says Sam Miller, managing director, group head agriculture, BMO Harris Bank. “Banks will forecast of what [your] cash needs would be and sensitized those with movements in grain prices. What is a dollar increase in corn mean or beans in a borrowing perspective? You almost have to look at it crop by crop because not every grain elevator has the same commidity mix.”
If your company has been able to maintain a strong liquidity position, the maintenance of a strong balance sheet will give the lender confidence that the amount of money it needs to cover all of its the purchases, the margin calls and everything that occurs during growing season and the harvest that follows.
4) Borrowing based certificates: The lender will want to see an outline of the working capital assets and how much debt is against the company to determine how much it will be able to borrow.
One of the most important tools in delivering these financials is a quality operations management software package — one developed specifically for agribusiness.