Banker, Beware

How Much Do You Know about Your Lender?

At the end of 2007 there were 8,536 insured financial institutions in the United States. Since then 15.7% have either failed or appear as problem banks. And the pace of bank failures has been increasing dramatically over the past three years.

"Of 7,500 banks, close to 1,000 are on a watch list," says farm financial consultant Dick Gilmore. "A lot of the problem is related to non-Ag stuff, like commercial and residential real estate, but those problems impact the farmer's ability to borrow."

The Federal Deposit Insurance Corporation maintains a problem bank list that contains the names of institutions that are likely to have weak capital positions that can lead to failure. In 2008 only 25 banks failed; in 2009 the number jumped to 140, then 157 in 2010. There were 23 bank failures in the first two months of 2011 alone. For more, click here.

"We're still not out of the woods with many of these banks," Gilmore says. "In a lot of areas, it's pretty grim."

If you're shopping for a new lender, make sure you ask the right questions. With higher input costs and capital needs, most farmers need dramatically higher lines of credit than just five years go. If your bank does not have adequate credit lines, can it partner with other banks to provide what you need?

You also need to find out if your bank is working under any kind of regulatory restrictions, which can impact lending capacity. "In some cases regulators move in and tighten down on the bank's capacity to do additional lending while they cure themselves or get taken over," says Gilmore. "It's public information whether they are under regulatory enforcement."          

If you're going to be shopping and possibly changing lenders, it's good practice to have a couple banks look at your credit needs and give you a proposal. Set a goal to evaluate this part of your business within the next six months.


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