Today’s business uncertainty, coupled with a tightening credit environment, is making it more critical than ever for businesses to approach loan renewals more strategically — and armed with information that can help you navigate the process.
According to a survey released by the Federal Reserve Bank of New York: In 2024, the rejection rate for credit applications rose to 21%, up from 20.1% in 2023 and 18% in 2022.
Shifting commodity prices, regulatory changes, labor shortages, and even global economic conditions are affecting U.S. operations — and thereby can lessen a business’s ability to secure loan renewals. While you can’t control everything, you can take charge of your financial analysis to improve your chances of getting your loan renewed. The key? Preparation, proactivity, and a solid backup plan.
That starts with assessing your financial standing early and anticipating potential challenges. By identifying and addressing gaps ahead of time, you demonstrate to lenders that you’re a responsible, forward-thinking borrower — boosting your chances of approval.
Start Early — Give Yourself a Head Start
“Waiting until the last minute to address your loan renewal can limit your options. Don’t leave it entirely in your lender’s hands — start the conversation at least three months in advance to stay ahead,” stated Peter Martin, Pinion finance and growth advisor.
“This is also the time to review your financials and get your strategy in place. Lenders appreciate businesses that plan ahead, and early preparation gives you time to address any potential problems.”
Before meeting with your lender, ensure you have all the necessary documents ready to demonstrate your financial stability and repayment capacity, including:
- Updated year-end financial statements
- Market value balance sheet
- Tax returns (if available)
- Cash flow projections & budget with upcoming capital expenditure needs
- Updated business plan that reflects current challenges and opportunities
Own the Process
Don’t wait for your lender to take the lead. Come to the table with a clear plan for repayment, cash flow projections, and a backup strategy in case you experience financial hiccups.
“Whether you’re an ag producer, grower, manufacturer, or business owner in any industry, preparing for a loan renewal isn’t just about paperwork — it’s about demonstrating financial strength and reliability to your lender. The more prepared you are, the greater your chances of renewing your loans on terms that support your business goals,” said Bryce Gibbs, Pinion advisor.
Don’t just gather documents — analyze your financial performance. Identify revenue, expenses, and profitability trends. If you faced financial challenges, explain them, and outline a risk-mitigation plan.
Know Your Loan Covenants — And Follow Them
Loan covenants are the terms and conditions of your loan and violating them can put your renewal at risk. Ask yourself:
- Are you meeting the required financial ratios?
- Have you violated any negative covenants?
- Are there other covenants that need your attention such as financial reporting requirements?
Unexpected financial challenges happen. If you’re out of compliance, contact your lender immediately — lenders hate surprises. Being upfront increases the chances of finding a solution that works for both parties.
For instance, some lenders may be open to restructuring terms if they see you’re actively addressing the issue. The key is to demonstrate that you’re aware of the problem and have a plan in place to correct it.
Understand These Repayment Terms
Lenders don’t just evaluate your assets — they evaluate your ability to repay. Understanding key financial terms can help you build a stronger case for loan approval. Here are critical metrics to keep in mind:
- Earnings Before Interest, Tax, Depreciation, and Amortization (EBITDA): Indicates your business’s ability to generate cash flow for debt repayment.
- Debt to Equity Ratio: A lower ratio signals a healthier balance sheet and less financial risk.
- Fixed Charge Ratio: Assesses your ability to cover fixed charges like interest and lease payments.
- Debt Service Coverage Ratio (DSCR): Shows whether your income is sufficient to cover debt obligations.
- Loan-to-Value (LTV) Ratio: Compares the loan amount to the asset’s value to gauge the sufficiency of your collateral.
- Liquidity Ratios (e.g., Current Ratio): Evaluates your ability to meet short-term financial obligations.
- Interest Expense Ratio: Determines how much revenue is used to pay interest expenses.
Being confident in discussing these numbers can improve your chances of securing a loan. If any of your metrics need improvement, work with your financial advisor to strengthen them before approaching your lender.
Have a Backup Plan
As you prepare for your loan renewal, consider talking to multiple lenders to keep your options open. Traditional lenders often rely heavily on land equity, which can be a challenge if you rent rather than own.
Fortunately, a growing sector of ag lenders takes a different approach, evaluating factors like production history, financial management, and risk-mitigation strategies instead of relying solely on real estate collateral.
Alternative lending options provide a safety net and boost your funding chances.
Make the Most of Your Loan Renewal
The renewal process can feel overwhelming, but it also provides the perfect opportunity to reassess your business, identify new growth opportunities, and strengthen your financial strategy. Use this time to position your business for long-term success.
“You can’t control the economy, the weather, or tariffs, but you can control your loan renewal process,” advised Gibbs. “Be proactive, plan early, and maintain communication with your lender. It can make all the difference in getting the funding your business needs.”
Need expert guidance? Connect with a Pinion financial advisor today to ensure you’re in the best position for loan renewal success.
