The Partial-Budget Request from a Lender
A regional lender asks you to prepare a projection for a 2,400-acre dryland wheat-fallow operation seeking a $600,000 operating loan. The borrower supplies three years of Schedule F data showing net farm income of $140,000, $310,000, and $85,000, driven mainly by wheat price swings. The lender wants a single-number projection of repayment capacity for the coming year. The borrower has also verbally mentioned plans to add 400 rented acres at $55/acre and to shift 300 acres from wheat to grain sorghum. You have not yet verified the rental terms or seen the sorghum budget assumptions.
1. How do you respond to the request for a single-number repayment capacity figure?
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Decline to present a point estimate as if it were a forecast. Three years of net income spanning $85,000 to $310,000 on the same acreage is a distribution, not a trend line, and the driver is price, which the consultant cannot forecast with confidence. Offer a range with stated assumptions: base, downside, and stress cases tied to explicit wheat prices and yields, with repayment capacity expressed as a coverage ratio under each. Name the assumptions in the report so the lender can substitute its own price deck. This is both more useful and more honest than a single figure, and it protects the consultant from being held to a number that was never defensible.
2. What must you do about the unverified acreage and enterprise changes before finalizing?
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Treat them as contingencies, not as base-case facts. Verify the rental terms in writing - $55/acre on 400 acres is $22,000 of added cost, and the lease term and any cost-share obligations matter. Obtain or build the sorghum budget rather than accepting the borrower's verbal assumption; a 300-acre shift changes both revenue and input costs. Present two versions: current operation only, and current plus proposed changes, so the lender can see the incremental effect. State clearly in the report which figures are verified and which are client-supplied and unverified. Mixing unverified plans into a base-case projection without disclosure is a procedures failure.