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Introduction1

It’s a new world out there…
“Do what you can, with what you have,
where you are.”

-Theodore Roosevelt

Following the tumultuous financial downturn of 2008 and the dramatic decrease in milk prices that occurred in 2009, I find it ironic that some lenders, many of whom were bailed out by the Federal government during this same time period, have walked away from their borrowers. This, of course, is occurring at a time when these same borrowers needed them most.

Some of my colleagues and many loan officers have informed me that this is now the “New Normal” and that I should now lower my expectations. However, I do not believe that people rise to low expectations. On the contrary, as new competitors enter the market (and they will), existing lenders will either step up their efforts to retain their share of market or they will exit the lending scene. I consider either of these paths a form of progress, primarily because I see no point in a lender “acting” as if they will provide loans to businesses when, in fact, they have no intention whatsoever of doing so…

The following cases are real life examples of banking experiences that Clients of mine have experienced in the past several years. Hopefully, you will be able to take away positive lessons from these and the after-thoughts to these stories. In some cases, you may actually find some humor in the ludicrous events that have occurred during this same time period. In all cases, however, my intent is not to degrade nor criticize any lender, but rather to provide you with examples of events that have actually been happening so that you may learn something positive from it. If you are a Loan Officer, perhaps you, too, will be able to benefit from these examples.

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Chapter 2

Recognizing the Value of Persistence
“Never, Never, Never Give Up”

-Winston Churchill

In this first case, my Client was encouraged to pursue a new real estate loan with their lender. For six months, we worked on cash flow projections and had them reviewed by the bank before finally being turned down by the bank in October 2008. Their special assets division took over this lending relationship as a result of increased feed costs experienced in 2008 and reduced profitability in 2009. Imagine that…

Monthly inventories were now to be completed on a monthly basis, in spite of this client never having been out of compliance on their loan to value or any other loan covenants. We’ve since gone on to make steady improvement in both loan to value and cash flow the past two years, in spite of the decreases in milk prices in 2009.
Simultaneously, we have been able to reduce the Client’s accounts payable from a level of $650,000 to $225,000 recently, even as we experienced milk prices that ranged from $9.50-$14.50/cwt range.

The Business Confidence Maximizer Chapter Excerpts

Planning For Your Feed Needs

Sounds like a given doesn’t it? However, it has been my observation that those producers who do the best job of mastering the feed acquisition game seem to be the ones that thrive financially, year in and year out. Since feed, as an expense, can consume 50-60% of your total revenue, it is crucial that you manage its cost as if your business depended on it because, in reality, it very well might. If there was one lesson we all learned in 2008, it was that we have entered a new world where speculation in the commodity markets can force a new trend that impacts every producer. In spite of
having record high corn crops the past several years, the dairy industry was treated to a new and less than “user- friendly” corn market. Unfortunately, as corn goes, so goes the price levels of most other commodities and feed crops.

Thus, whether you grow a lot of your forages or buy it all as some producers do on the
west coast, we need to think it through in terms of what our needs will be, what our
potential sources could be, and what our break-even feed costs are at various milk
prices.

Getting Through Your Next Loan Renewal

This is the season when many annual loan renewals are completed in the dairy industry. Hence, it can tend to be a period of added anxiety for many producers, especially given the difficulties of the past 18 months. As if the woes of the industry and the additional debt load that many producers are carrying are not enough, most banks are under tremendous scrutiny from auditors and other regulators both inside and outside of the bank. Their anxiety can lead to terms that one might consider unusual. Some examples that come to mind include the following:
1.) New or increased levels of loan fees.
2.) A requirement for added collateral to secure loans or lines of credit.
3.) Additional loan covenants required.

Of course, these items are all occurring at the same time that there are fewer banks
available for you to move your loans to.

GOALS…WHO NEEDS THEM?!

I often hear people refer to the goals they have set for themselves. When they do, they often say that they have them all firmly planted in their head. However, my experience has taught me that this just does not work as well. It is imperative that we get them down on paper since it makes us completely focused in our thinking about what we wish
to accomplish. If you try to do this “just in your head,” you will find that it is too easy to get distracted by other issues, and we are all faced with distractions every day. Thus, commit them to writing, and your goals are much more likely to be reached. Even if you write them down and put them in a desk drawer, your subconscious mind will go to work
on them.

Decisions, Decisions!

The problem with delaying decisions is best summarized by Adam Hanft in his article entitled “The Risk of Doing Nothing” in the December 2002 issue of Inc. He was discussing the absence of action on the part of Montgomery Ward (remember them) as Wal-Mart grew from 125 retail stores in 1975 to become one of the largest companies of any kind in the world.

Mr. Hanft reviewed how Folgers and Maxwell House did little or nothing as Starbucks redefined coffee as an “experience,” rather than just as a beverage. He added that “there were numerous points along the way where any of these companies could have broken the continuum of paralysis – but at each point the consequences of change were judged greater than the risk of doing nothing.”  He goes on to say: “That’s what’s so insidious about the absence of action: no single decision to delay or defer ever appears monumental at the time. Inaction also takes time for the contours of its dumbness to be revealed, so it rarely punishes current management; only the future gets mortgaged.”