1. Do’s, Don’ts & Best Practices Preparing for a Loan
Mickie Nuss – F&M Bank
Sara Meidinger – Bank of Stockton
Thursday November 2nd, 2017

2. Do’s Bring everything the Banker needs
Tax Returns last three years – both personal and business (if available)
Prior year financial results for income & expenses
Balance Sheet business
Personal Financial Statement (PFS)
Current Annual Farming Budget

3. Cash based vs. Accrual based
Cash Based Statements
Accrual Based Statement
Tax Returns
Does not include many items required by the Bank
Typically under/over state income or expenses
Does not accurately report working capital and net worth
Much better and typically required by banks
Includes Accounts Receivable, Accounts Payable, Inventory, Cash Invested in Growing Crops
If you don’t prepare Accrual Statements – Banker can help you

4. Working Capital
What is Working Capital = Current Assets - Current Liabilities
Current Assets
Cash – Money in the Bank
Account Receivables – Money people owe you
Cash Investment in Growing Crops – Money already spent on next years crop
Current Liabilities
Accounts Payable – Money you owe people
Balance on Operating Line – Money you owe the bank
Other Accruals Payables – Money you owe your employees, govt., PG&E, etc.

5. Working Capital (cont.)
Why is working capital important?
Banks use working capital to determine if they can lend you more money
Banks want to see positive & large working capital
Purchasing equipment using cash erodes working capital
Purchasing equipment using operating lines of credit erodes working capital

6. Do’s (cont.) Know Amount of the equipment – copies of invoices
Timeline for the purchase – when do you need the $$
Understand Working Capital and impact equipment purchases have on it

7. Do’s (cont.) Budget needs to show that you can repay the loan
Make sure properly financed – term of loan, timing of payments
Understand important terms;
interest rates – fixed or variable
Repayment – monthly or annual payments
leasing options – tax vs. capital lease

8. Don’ts Purchase equipment solely to avoid paying taxes
My motto - “make as much money as physically possible and pay taxes”
Ask for loan on Dec 24th – Banker needs time
Erode working capital by paying for all equipment with CASH
Use operating line of credit to purchase equipment – BAD

9. Best Practices Communicate with Banker constantly
During annual line renewal – request a “Capex” equipment line
What is this?
Show Banker why new equipment is needed/justified
If you have questions – go see your Banker
Make your Banker buy you lunch

10. Questions? Mickie Nuss – F&M Bank, 209.367.2444
Sara Meidinger – Bank of Stockton,