Ask a Banker | Keep in Touch
Your banker wants to hear from you
By Katrina Huffstutler
When you take out a loan on a new home, car or boat, odds are you won’t see the lender again. But when it comes to agricultural loans, it’s a different story.
Texas and Southwestern Cattle Raisers Association Director John Zacek, who also serves as Prosperity Bank’s area chairman for South Texas, says that from a regulatory and loan policy standpoint, most banks are required to see their collateral at least annually. That usually means a livestock inspection and appraisal. But he says borrowers and lenders both benefit from staying in touch more regularly than required by law or policy.
A sounding board
Offering an example, Zacek says, “I had an appointment this afternoon with a customer to discuss some management changes he’s contemplating on his operation.”
The customer, he explains, is considering converting half of his cow-calf operation to stockers or replacement heifer development. Zacek’s role in the conversation was to help his customer determine the best investment option considering the set of facts, costs and equity the customer had available to invest.
“This particular operation is a little non-traditional,” he says. “Labor is split between their farming operations and their ranching operations. The labor cost is going to be considerably less because they are devoting only about 50 percent of their time to their livestock enterprise. The rest of their time is devoted to farming.”
Zacek says that most cattlemen only make these kinds of management decisions once a year or even once during an entire cattle market cycle. But bankers see them daily, making them a great sounding board.
“We might be able to help our customers avoid a train wreck,” Zacek says.
No time for feelings
Another reason to consult your banker? Their advice is unbiased and your conversation is confidential.
“Your banker is one of the few people you can talk to who won’t offer advice based on feelings,” Zacek says. “And at the same time, you can trust them to keep everything discussed private, almost like a trade secret. What’s discussed won’t be shared with anyone else. It’s just between you and the banker. That is part of what really makes it an invaluable relationship.”
While it’s great to start the conversation around the kitchen table — discussing how the operational change would affect each member of the family or to factor in family politics — Zacek says the emotions can sometimes run high and cloud the decision-making process.
“That’s why you want to bring in an emotionally objective viewpoint from someone who is not directly involved, like a banker or knowledgeable investment advisor,” he says.
A team effort
Zacek says the relationship between lender and borrower isn’t just about the two of them.
“Much like the rancher has his team to carry out the daily tasks related to his operations, the banker also has a team to provide the banking services and support,” Zacek says. “For example, I know a lot about cash management and sweep products, but I don’t have a clue how to set it up. It takes a knowledgeable team to bring it all together.”
Don’t hesitate to ask
Maybe it’s just a small improvement. Maybe it doesn’t seem worth bothering the banker. But Zacek says a lender enjoys being in the know when it comes to his borrower’s operation. It also helps them do their job better.
“The better we’re informed, the better we can give good advice,” he says.
“A lot of times, we hear about big financial decisions after they have happened. The first time we see or hear about it is when we see its impact on their financial statement 3- to 6- months after the fact. All we can do then is look at how that purchase or operational change impacted their numbers.”
He offers an example: “If you go buy a ranch or a new tractor or something else that costs a 6- or 7-digit number and you spent your own money for the purchase or took on additional debt, did you take the time to evaluate how that purchase might impact your cash flow? We know 2015 wasn’t good. Many ranchers experienced record-high financial losses. If 2016 wasn’t much better and you’ve spent all of this money and are now showing a negative cash flow for yet another year, just how many years of negative cash flow can you afford to have?”
Zacek says it might have been different if the customer had come to him first and talked things over. Most times the answer from the banker isn’t “no,” but Zacek says his 34 years of ag lending experience might have told him to suggest, “Don’t use up all your liquidity to buy a long-term asset. You might need that cash to re-margin or cover some operating losses.
“We might have suggested a purchase option on the ranch or said, ‘Why don’t you lease a tractor instead of buying it?’ Then the debt doesn’t go on your balance sheet. You can walk away from a lease, but you can’t walk away from a promissory note,” he says.
While Zacek says a banker is happy to help, all decisions are always ultimately up to the borrower.
“You don’t have to worry about your banker getting involved in your management decisions just because you have a relationship with him,” Zacek says. “We can advise, we can talk, we can say, ‘What about this? Have you thought about that?’ But that’s it. We need to stick to lending money and we need to let you stick to being the managers and decision makers.”
So, pick up the phone, shoot an email or stop by in person. Your banker wants to hear from you.
“Keep in Touch” is excerpted from the March 2017 issue of The Cattleman magazine.