Banks Sell money. They don’t operate movie theaters, shoe stores, or farms. They sell money in the form mostly of promissory notes tied to collateral with mortgages or security agreements and revenue some fees for housing, moving, and reporting on your money on deposit. The basic structure is I will gladly promise pay you more money than you gave me (i.e. interest) if you will give me the money now. The response in a successful lender relationship is sure, but I am going to need to be first in line on the thing you want to use the money for and maybe other things you own to give you those funds. Frequently, that promise to pay means periodic payments.
When you don’t pay as promised, somebody, or something has to pay. When your pockets are empty, the lender needs to think about taking the pants instead and selling them to get their funds back. The way pants pay is through a foreclosure of the mortgage or security agreement.
When do you catch the ire of the lender? When you quit talking, quit providing the documents you are supposed to, like balance sheets and income tax returns ( or worse, providing incomplete or inaccurate ones), not paying other banks what they are owed, moving funds out to other banks, failing to pay property or real estate taxes or the classic head in the clouds nothing is wrong response to inquiries. Also of note, selling capital items and production and not providing the funds to the lender that provided you the money to produce or acquire them is pretty offensive in most lender’s eyes. Its call a breech.
Sometimes, it’s not you, it’s the world. That could mean market down swings, property not being worth as much, you not getting paid timely when you sell, poor yields and harvest ratios. These can also cause unpleasant conversations with the lender about how those promises are going to be met.
What can you do? Come clean and show your lender that you are having problems early is better than waiting until the loan terms call for a balloon payment in a week. Being upfront and honest is going to establish a relationship that may allow a resetting of the table rather than the selling of the silverware. Actions such as adjusting how much gets paid, when it gets paid, providing additional assets to secure the amount due, or maybe selling off some capital voluntarily are all options. Truth be told, banks don’t want your stuff, they want the funds plus interest so they can sell funds again. Foreclosing and selling distressed assets at auction is not the desired end state for most lending relationships, regardless of which side you are on.
What you should not do. Post or threaten to post inflammatory statements on social media about the lender. Yell, I will see you in court. Ignore the lender. Doing it alone without counsel and advisors. Make unrealistic demands. Insite that farming is special, unique or somehow immune to the regular processes of lending law.
If the voluntary good faith effort to work things out with the bank doesn’t work, bankruptcy is available. It doesn’t give you a blank check to impose terms on the bank, but it may provide a way to balance multiple creditors who all would like to get that last bit of lint out of your pocket.
