Article by Clint Nash, Senior Loan Officer, Yuma Branch
Do you know why Premier Farm Credit asks for detailed descriptions on drafts and repayments – like when you bring in a check and have to detail exactly what you sold, or when your loan officer calls and asks what a check you wrote was for? It’s not always convenient, but we go the extra mile so we can compile the most accurate snapshot of your operation’s financial position – so that you know where you are at and can make the best decisions for your operation! And as if that’s not enough, here are 4 more reasons providing the information is to your benefit:
1. Your operation’s annual earnings results will be more accurate. If non-operating disbursements are not labeled as such (i.e. capital purchases, breeding livestock purchases, land purchases, term debt payments, capital improvements) – your operating expenses will appear bloated and you won’t get an accurate income statement or annual earnings calculation. These non-operating disbursements must be clearly identified for what they are; otherwise, those expenditures will reflect in the income statement as an operating expense rather than equity-building asset additions, principal debt reductions, capital improvements, or interest expenses. This will in turn understate your earnings and capital asset repayment ability, and could understate assets on your financial statement. Term debt payments to other financial institutions should also be itemized separately for the principal amount and interest amount.
2. It makes your next renewal simpler. Designation of non-operating expenses also assists your loan officer greatly in recognizing those items as they happen, and allows your loan officer to account for them on your upcoming financial statement to be used for your next renewal analysis or credit action, which results in timelier, more meaningful and accurate analysis. Accurate descriptions of what has been sold (commodity, bushels, tons, cwt., cow, bulls, steers, heifers, pairs, etc.) for all operating repayments serves some of the same purposes as covered above. Sales of breeding cattle and market cattle should each be designated as such.
3. It often helps us find forgotten assets for borrowers. You guys are busy! Accurate and detailed information allows your loan officer to reconcile inventories of crops and livestock to determine what should be on hand. It’s common for borrowers to have some cash crop on hand that they forgot to put on their financial statement (and sometimes forgot about in general). We also have instances where borrowers have sold some crop that was stored somewhere and they forgot they sold it and it is still listed on their financial statement. Having an exact accounting of what has been sold usually allows your loan officer to find errors in inventories which results in more meaningful financial analysis. In order for the reconcilement to work, borrowers must provide accurate data on yearly production – like how much wheat, corn, sugar beets, beans, etc., and/or calves weaned, were produced. Along with production of animals, death loss in each category must be accounted for.
4. It can make future borrowing easier. If we have exact information on sales, we are able to determine average crop yields and calf crop percentages weaned and sold each year. Over a three year period, we are able to determine average yields and livestock production which results in a more accurate projection for the operation.
Should you have questions or concerns about the above, please contact me or your loan officer. We’re here to help you succeed!