<< p23 you make on the lender. �is is a subjective judgment on the part of the lender as to whether you and your business idea will succeed. �ey will look at your quali cations, experience and management skills, as well as your personal credit. �e better you are prepared before you meet with a lender, the better your chances of making a good impression on the lender with regard to character.
§ Collateral are the assets you own that the lender uses as a backup to recover funds if you happen to default on the loan. �ink about the assets that you will put up as collateral. Is the liquidation value of these assets sufficient to pay back the lender in case of default?
§ Conditions surrounding the intended purpose of the loan. How risky is your farm enterprise? What are the current economic trends of the farm ' s commodity and / or markets? Do they make your future success more or less likely? Able to speak the language of nance. So it is important that your proposal or business plan include basic nancial statements like a B a l ance Sheet( or Ne t Wor t h Statement), Operating Statement( or Pro t and Loss), and Cash Flow Statement. Most lenders will also want to see income tax returns from previous years.
What Do Lenders Look For? Above all, lenders think about risk. Are you a good risk for their money? Should they invest in you? Most lenders have a goal of making a pro t for their shareholders. All lenders have a primary goal of getting their money back, with interest. To ensure these goals are met, lenders will measure the amount of risk you pose. Higher risk may mean that you need to offer more collateral, pay a higher interest rate, or that you will not be able to receive the loan. How is your credit history? Are you up-to-date on payments, loans, credit cards, and taxes? If not, you
Are not a very good risk. If for some reason you don ' t have a good credit history, you may have to prove yourself for a few years, then return with another proposal.
All lenders expect to be paid back. �ey want to know that the business they lend to will generate enough cash to pay back the loan and make additional money( for paying their costs of operation and for pro t). No lender will loan you all of the money you need for a project; they expect you to be risking some money as well.
Lenders will take the information that you give them, study it, and make a decision as to whether or not they want to take a chance on you. �ey will need to have their names on more collateral than just the asset that you buy with the borrowed money. �is gives them some security that their money will be recovered if you default on the loan. As a rule of thumb, they need to have about 150 % worth of collateral for each 100 % that they loan. �is is how they can be reasonably assured of getting the 100 % auction for that piece of now-used equipment even if it ' s raining on auction day. Most lenders will also want to see that you have at least $ 110 available to repay $ 100 of principal and interest, above and beyond all other operating expenses and family living expenses.
Your First Agricultural Loan In today ' s world, it is unusual for a lender to make a rst loan to person looking to buy a farm. More likely, a rst loan might be used for livestock equipment, but probably not for a brand new herd / ock or your rst piece of farm equipment as these may be too risky. Most lenders expect to see you make the rst investment. �en, a�er a couple of years of managing the business, you might be able to borrow or expand.
Or a�er successfully operating equipment for a few years, you may be able to borrow to get additional equipment or a newer tractor.
Start up businesses are very risky. It only takes animal to end up a cull few hours for a top-notch equipment can turn into spare parts a�er just a little poor maintenance unmarketable due to damage caused by a mis- identi ed insect.
Always think about a“ Plan B” �ink about your risks and how you will address them before they occur.
Your Loan Is Denied – Now What? If your loan application is turned down by a lender, the law requires that the lender tell you, in writing, the speci c reasons for the denial. You may be denied because one of your“ Five C ' s” is weak, you have poor credit, or simply that the nancial institution isn ' t familiar with the type of agricultural business in which you are interested.
Don ' t lose heart. Each time you bring your plan or proposal to a lender, you gain experience If your loan is turned down because of a poor credit report, you may request a free copy of the likely, a rst loan might be used for livestock or report from the credit report company. Check it for accuracy and completeness as you have the right to dispute any errors. If you have a poor credit history, start repaying outstanding balances on time to re-establish an acceptable record and then try to apply for a loan again
If you are still unable to get credit, you can try get a loan with other lender as different lenders have a slightly different qualifying standards. Or you might consider asking afriend or relative with an established credit history with an established credit history to act as a co-signer for you.
Some farmers with whom I have worked have taken several years to get the loan they want for their farm. Don ' t lose heart. Each time you bring your plan or proposal to a lender, you gain experience.
Sometimes it is a good idea to go to a lender to just, get information, not money. I have seen this work with farmers on rented farms, who want to buy a farm. �ey worked for several years with a couple of lenders, and nally, a�er a number of denials, they got the money to buy a farm.
So getting that rst agricultural loan can be a challenge. It may even seem like more than farming is. But if you think your farm as a business and prepare before you meet with a leader, you will have a better chance of long term success on the farm.
July- August 2017
FARMERS
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