Building A Lasting Partnership: How Lender Relationships Drive Success In Forest Financing
by Josh Davis
Vice President Food and Agribusiness Timber, Farm Credit Mid-America.
The Importance of a Trusted Council of Advisors and Partners
In these turbulent times, while expansion plans are on hold, producers must focus on what lies ahead and, critically, on fostering a robust relationship with a strong council of trusted partners and advisors. This council may include accountants, equipment dealers, other industry leaders, and your lender.
The ability to call on these partners for advice in trying times can help ease the overwhelming list of decisions to be made and problems to be solved.
The right lender knows the forest products industry and stays committed through every cycle.
Fostering a Culture of Trust and Partnership
In times of uncertainty, a strong relationship with a lender who understands the forest products industry becomes far more than a transactional interaction—
it becomes an essential component of long-term operational resilience. Lenders who truly understand the dynamics of the industry do not simply ride the tide when market conditions are favorable; they remain committed even when challenges arise. Partnering with a lender that specializes in the forest products industry offers access to strategic resources and customized financing products tailored to the cyclical nature of the hardwood industry.
A primary tool for weathering downturns is sustaining a healthy level of working capital. Maintaining a benchmark of around 25% equity in inventory and receivables is often recommended.
Timeless Strategies for Strengthening the Relationship
The essence of a robust lender-producer relationship lies in the character of both lender and producer. For the forest products industry, where external risk management tools like hedging and insurance products common in other agricultural sectors are limited, trust and clear communication are paramount. Those who view their lender as a strategic partner, not just a creditor, are better positioned to navigate downturns. This partnership model ensures that, regardless of market fluctuations, producers receive not only funding but also the invaluable support of industry expertise and actionable insights.
Clear financials are the key to a better relationship with your lender, even in tough markets.
Open and Proactive Communication:
In an environment where financial conditions can change rapidly, it is vital for producers to maintain open lines of communication with their lenders. Regularly updating the lender on operational challenges and successes—rather than waiting until issues become critical—allows the lender to provide timely advice. Transparency about the “good, the bad, and the ugly” builds trust and can lead to more flexibility and creative solutions tailored for the current market cycle.
In today’s uncertain economic landscape, viewing a lender as a committed partner makes all the difference. This approach—grounded in trust, transparency, and mutual respect—is what can ultimately put your operation in a position to find long-term financial stability and success in the industry.
Preparation and Financial Diligence:
Operations in the forest products industry benefit from preparedness. Those who are able to present detailed financial statements and are able to articulate a clear understanding of their operations may receive more favorable terms. By explaining the story behind financial trends, you may be paving the way for a smoother financing process even during adverse market conditions.
Effective Inventory and Liquidity Management:
In the forest products industry, operating lines of credit are critical as most producers rely on financing for inventory and accounts receivable. Lenders evaluate not only leverage but also liquidity. A primary tool for weathering downturns is sustaining a healthy level of working capital. Maintaining a benchmark of around 25% equity in inventory and receivables is often recommended. This liquidity is the first line of defense when markets decline, ensuring that operations can continue without disruption while keeping the lender’s confidence intact. If you don’t have this and are already in a tough position, be open and honest with your lender so you can work as a team to pave the way forward.
Looking Ahead
Despite current market challenges, the forest products industry is poised for recovery when global conditions stabilize. Meanwhile, maintaining strong, transparent relationships with a council of trusted advisors and mentors remains crucial. By prioritizing open communication, diligent financial management, and the strategic use of specialized financing products, lumbermen can build a foundation that not only sustains them through the downturn but also positions them for success when the market rebounds.
In today’s uncertain economic landscape, viewing a lender as a committed partner makes all the difference. This approach—grounded in trust, transparency, and mutual respect—is what can ultimately put your operation in a position to find long-term financial stability and success in the industry.
