farmmanagement The need to know
Howdoes your lender viewyou and your financial statements?
By Coralee Foster, BDODunwoody LLP and Neil Van Oirschot, TDCanada T
rust T
he relationship between a farmer and a lender is critical to the success of the farm operation. However, many farmers are unsure of exactly what information their lender is looking for and what will impact their borrowing arrangements.
Collateral
Collateral, or the presence of assets sufficient to secure any borrowings, can be comprised of land, buildings, equipment, quota or personal assets of the borrowers. Generally, real estate is easy to provide as collateral and lenders will prefer this over any other form. Real estate generally increases in value and cannot be moved, providing good security for a lender, should they need to collect on the collateral to satisfy their loans. Quota can present a challenge as far as security for loans. While it historically has increased in value, the uncertainty surrounding its future precludes most lenders from
accepting the full amount as security for loans. Typically lenders will loan 50 to 70 percent of the value. Lenders may wish to secure additional coverage by using loan postponements where there is significant debt to related parties. This ensures that the operation’s ability to pay off bank debt is not impaired by repayment of other loans.
Borrowers are also often asked to provide personal guarantees, in addition to the direct security provided. This is not uncommon and is a mechanism to provide recourse to the principals of an incorporated farm operation or in some cases a guarantee is required when the tangible security provided is owned by entities other than the borrower.
Cash Flow
While it is important to have adequate security for lenders to access should the loans go into default that is not
British Columbia Berry Grower • Spring 2010 19
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