Ag Econ 330Ag Econ 330

Jayme Ungs & Doug LenhartJayme Ungs & Doug Lenhart

April 22, 2009

PresentersPresentersJayme Ungs – Boone, IA

– 11 years of banking experience

– 3 years in the seed industry

– Primary focus on Ag related lending

– Currently operates a corn / soybean row crop farm

Doug Lenhart – Ames, IA– 1 year banking experience

– 20 years integrated swine experience

– Currently operates a hog farming business

Ag Banking & Credit WorthinessAg Banking & Credit WorthinessThe 5 C’s of Lending

– Character– Evaluate the person, mgt ability

– Capacity– Cash Flow & Earned Net Worth

– Capital– What does the borrower bring to the table

– Conditions– What is the market (niche)

– Collateral– Risk Rate the borrower

Ag Banking & Credit WorthinessAg Banking & Credit WorthinessKeys to Credit Worthiness

– Use of Hedging & Marketing techniques

– “Know your numbers” / Breakevens

– Management Knowledge

– Integrity

– Communication Skills

Ag Banking & Credit WorthinessAg Banking & Credit Worthiness Information Review

– 3 year trends– Income / Expense “Tax Returns”

– Balance Sheet Review

– Cash Flow Coverage History

– Liquidity

– Credit Scores– Reflects your history of money management

Ag Banking & Credit WorthinessAg Banking & Credit Worthiness Information Review

– Upcoming Year Projections– Income / Expense

– Planned Asset Purchases or Sales

– Cash Flow Coverage

Ag Banking & Credit WorthinessAg Banking & Credit WorthinessAnnual Activity

– Collect current tax return

– Collect current balance sheet

– Revolving Line of Credit renewed

– Term Notes reviewed

– Farm visit to review collateral (crops & equipment)

Ag Banking & Credit WorthinessAg Banking & Credit WorthinessRevolving Line of Credit

– Most typical lending method for operating money

– Renewed on an annual basis

– “Revolving” Can be used – paid down – used again

– For grain operations, typically requires “rest period”

– Monitored for “Carry Over” / “Lap Over”

– Interest rates are typically tied to “Prime” & variable

– Often “Due at Maturity”

Ag Banking & Credit WorthinessAg Banking & Credit WorthinessTerm Notes

– Most typical lending method for equipment / land– Amortization term & Interest term may vary

– Land typically have 20 – 25 yr am– Buildings typically have 10 yr am– New equipment typically 5 – 7 yr am– Used equipment typically 2 – 3 yr am

– Most often utilize a fixed interest rate– Annual or Monthly payments most common

– Varies based upon business cash flow

Ag Banking & Credit WorthinessAg Banking & Credit WorthinessBeginning / Young Farmer Loan Assistance

Programs

– FSA– Direct Borrowing

– Guaranteed Borrowing

– Loan Participation

– IADA– Reduced Interest Rate program

– Participation Loan Program

Ag Banking & Credit WorthinessAg Banking & Credit WorthinessCredit Scores

– 3 Primary vendors that report

– Used in most credit evaluations

– Impacted by:– Payment history

– Available credit lines & use of those lines

– Length of time accounts have been open

– Frequency of inquiries

– Not just for retail loans – Also used in Ag Credits

– 600 700 800

Ag Banking & Credit WorthinessAg Banking & Credit Worthiness

Ag Banking & Credit WorthinessAg Banking & Credit Worthiness

Ag Banking & Credit WorthinessAg Banking & Credit Worthiness  Farm # 1 Farm # 2 Farm # 3 Farm # 4

  3100 acre Custom Hog 1500 acre 550 acre

  Corn / SB Feeding / Row Crop Corn / SB Corn / SB

Age 38 30 27 34

Total Mach $ 804,091 95,700 158,484 159,165

Mach / Acre 259 285 106 289

Mach Debt 578,713 34,300 30,344 103,311

Mach Debt / Ac 187 102 20 188

Working Capital 148,070 38,727 134,753 41,094

Total Assets 2,229,791 900,660 1,553,580 1,644,386

Total Debt 1,385,084 667,145 1,094,008 1,071,563

Land Debt / Ac 0 0 570 1,333

Debt/Asset Ratio 62.12% 74.07% 70.42% 65.16%

Debt / Net Worth 1.64 2.86 2.38 1.87

Debt Service Cap 1.20 1.28 1.32 1.22

Off Farm Income Yes Yes No Yes