Preparing for Your Next Bank Conversation
By Elizabeth Grider, CPA
When it’s time to meet with your lender, preparation matters. Whether you’re renewing an operating line of credit, financing a new combine, purchasing additional acreage, refinancing existing debt, or planning for future growth, your financial statements help tell the story of your business. The more clearly that story is presented, the easier it is for a lender to understand your operation and make informed lending decisions.
For agricultural businesses, lenders want to know two things: Is the operation financially healthy today, and can it continue to meet its obligations tomorrow? Agriculture is a cyclical industry, and lenders understand that commodity prices, weather conditions, and input costs can create volatility from year to year. As a result, bankers often look beyond a single year’s profit and evaluate whether an operation has the financial strength to navigate changing conditions while continuing to make loan payments and invest in the future. They may also review trends in profitability, net worth, and overall financial health when evaluating a lending relationship.
Financial statements often provide lenders with insight beyond a single year’s profit or loss. Information such as cash on hand, grain or livestock inventories, equipment investments, and existing debt can help lenders better understand the overall financial strength of an operation. When combined with cash flow information, these factors help paint a more complete picture of the operation’s ability to navigate both opportunities and challenges.
The quality of the financial information itself can also influence the lending process. Many businesses provide compilation financial statements prepared in connection with their annual tax return. While these statements serve an important purpose, they do not provide assurance from an independent CPA. As financing needs become more complex, lenders often request reviewed or audited financial statements prepared by an independent CPA firm. Unlike a compilation, reviews and audits include procedures performed by an independent CPA to provide assurance on the financial information. Combined with the accrual basis of accounting typically used in these financial statements, this can provide lenders with greater confidence when evaluating available cash, existing debt, income-generating ability, and overall financial health.
Strong financial reporting is about more than satisfying a lender’s request. It can help business owners better understand their operations, identify trends, and make more informed decisions about the future. As businesses grow, reviewed or audited financial statements prepared by an independent CPA firm often become valuable tools for strengthening banking relationships, supporting financing opportunities, and providing stakeholders with increased confidence in the financial information being presented.