Financial Tips for Farmers
Lincoln Savings Bank has been serving Iowa farmers and rural communities for over 115 years, so we understand the stress that comes with economic change. In recognition of National Agriculture Month, we want to help our farmers prepare for tough financial times by providing a few key financial considerations.
“We work hard to keep the lines of communication open with our farm customers, and they know we are their best resource for providing financial guidance,” said Dana Uhlenhopp, Executive Vice President and Chief Credit Officer at Lincoln Savings Bank. “Our customers are our friends and neighbors, and they play a key role in our rural Iowa communities.”
To help farmers be financially prepared for the ever-changing agricultural economy, Lincoln Savings Bank is sharing the following tips:
- Cash is critical. Carefully examine every capital purchase, especially if it will require additional debt. Will the expenditure generate the cash flow needed to pay for itself? If the new item can’t create enough new cash to pay for itself over a reasonable period of time, defer the purchase.
- Let a farm budget guide your financial decisions. Think of your farm budget like a map: without a budget, you’ll lose your way financially. Use a farm budget to track all income and expenses. Update it frequently. The budget will help you maintain the direction of your agribusiness.
- Analyze your farm’s financial position and performance. Are your investments generating the maximum return? If not, why? Are your other (non-farm) assets generating a maximum return? If not, does it make sense to sell assets that aren’t performing?
- Examine your debt structure. Finance long-term assets, like real estate, with long-term debt. Finance shorter-term assets, like machinery, with shorter-term debt. Does it make sense pay down your short-term debt by increasing your long-term debt? When deciding whether to use your long-term equity, make sure your need is very significant.
- Prepare for a financial review. When preparing to meet with your banker, provide all information requested. Have current inventories, cash flows and balance sheets ready. If you are having financial issues, be prepared to share your thoughts on how to resolve them so you can discuss with your banker. Writing down your ideas is encouraged.
- Ask about the USDA’s guaranteed farm and rural development loan programs. Your debt can be restructured over a longer period at a lower rate through these programs. There are criteria that must be met to qualify for USDA programs, but Lincoln Savings Bank is experienced writing these loans.
- Review hazard and fire insurance coverage. Increasing your deductibles can lower your premium. Carefully review every item on your inventory list and consider eliminating coverage on obsolete or low-risk items to save money.
- Examine life insurance policies. Many whole-life policies have provisions that allow you to borrow against or deduct premium costs from the cash surrender value. What type of life insurance do you have? Is it worthwhile to maintain a costly whole life policy when you could get similar coverage from a less expensive term policy?
- Deal with financial problems immediately. Talk to your banker early and often. A good way to avoid serious financial problems is to identify and resolve them early. Take a team approach; create a personal “board of directors” of people you know and respect—including your banker—who can be your sounding board.
- Keep a clear perspective. Think through business problems by temporarily getting away from them. Take a day or two off, enjoy a weekend with family, or plan an overnight trip to see friends. However you do it, it is important to balance your life and shift your focus to other activities. Sometimes fresh perspective brings clarity.
Lincoln Savings Bank takes pride in our long history of serving Iowa farmers and rural communities. We celebrate and admire the hard work and dedication our farm clients put into their operations to make them successful. We encourage you to contact us to talk about your financial situation so we can help.
Lincoln Savings Bank, Member FDIC