Summary
Using shocks to debt coverage can be a useful tool during volatile times when completing a cash flow projection.
As the 2026 credit renewal season begins, the agricultural lending landscape has moved from the high-liquidity years of the early 2020s into a period of sustained margin pressure. For lenders, the challenge is no longer just assessing if a producer can cash flow but understanding exactly where their loan repayment breaking point sits.
In an environment of “sticky” operating expenses and stagnant commodity prices, a static cash flow projection is an incomplete picture. Proactive lenders can move beyond the basics, using FINPACK as a tool to shock debt coverage during volatile times when completing a cash flow projection.
What are cash flow projection shocks?
Cash flow projection shocks look at the impact volatility may have on the customer’s predicted debt coverage performance. Essentially, shocks allow you as the lender to help plan for the worst-case scenario. Given inflation pressures, interest rate increases, and unpredictable markets, cash flow projection shocks are a useful and relevant tool to add to the credit analysis process.
Cash flow projection shocks in FINPACK Credit Analysis look at the impact of decreasing gross income, increasing operating expenses, and increasing interest rates on the debt coverage ratio. This valuable tool is available for both agricultural and commercial projections. The Shocks to Debt Coverage Ratio section can be found on the bottom of the projection’s Cash Flow Plan Executive Summary output page.
Interpreting cash flow projection shocks
When specifically analyzing cash flow projection shocks in FINPACK, it is important to understand the story they tell. Let’s look at an example where the cash flow projection shows a debt coverage ratio of 1.79 for the projection period. As a lender, you likely see this as an acceptable projected ratio value and feel this business “cash flows” for the year. But let’s analyze the impact cash flow shocks have on the debt coverage ratio.
| Cash Flow Shock | Resulting Debt Coverage Ratio |
| 10% decrease in gross income | -0.18 |
| 10% increase in operating expenses | 0.07 |
| 3% increase in interest rates | 1.32 |
How could the customer’s performance story change in a volatile situation? Well, the 10% decrease in gross income results in the debt coverage ratio going from 1.79 to a negative 0.18. This means acceptable or even strong debt coverage performance will erode quickly when there are modest swings in income. Again, a strong debt coverage position will turn sour if operating expenses increase by 10%. Lastly, in this example, the customer has less debt coverage risk if interest rates rise. The 1.32 debt coverage prediction under a 3% increase in interest rates meets many financial institution lending thresholds.
The worst-case scenario
What are the right shock levels to use? Well, that depends on your crystal ball or volatility predictions. FINPACK cash flow projections include default shocks that look at the impact of a 10% decrease in gross income, a 10% increase in operating expenses, and a 3% increase in interest rates. A valuable feature of FINPACK is that your financial institution has full control over these shock percentages. Changing any of these percentages to meet the current volatility factor is easily accomplished by accessing Tools > Options > Shock Percents in the FINPACK desktop menu bar. For FINPACK+ users, admin users can modify the shock levels in the credit analysis system setup file.
Summary
To navigate the 2026 renewal cycle, lenders will focus more on cash flow projections and forward-looking stress testing. By leveraging FINPACK’s stress-testing capabilities, you can review this information with your clients and ensure the long-term stability of your agricultural portfolio. If you have any questions about the resources described above, please contact us and we would be happy to assist!
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Pauline Van Nurden is currently the Associate Director for the FINPACK Team. She has been with the team since 2017 as an Economist.
Prior to joining the FINPACK Team, she worked as a lender. This provides her valuable industry experience and knowledge in her work with FINPACK. Pauline holds a Master’s Degree in Agricultural Education and Bachelor’s Degree in Applied Economics, both from the University of Minnesota.