FARM AND RANCH CREDIT

• BASIC LENDING PRINCIPLES– HUMAN/MANAGEMENT FACTORS– FINANCIAL POSITION AND PROGRESS– REPAYMENT CAPACITY– COLLATERAL– LOAN PURPOSE

HUMAN / MANAGEMENT FACTORS

• CHARACTER– HONESTY– DETERMINATION TO MEET

OBLIGATIONS– PERFORMANCE RECORD– WILLINGNESS TO COOPERATE

• PERSONAL FINANCIAL HISTORY– CREDIT REPORT

• SLOW PAY• BANKRUPTCY• JUDGMENTS• BAD CREDIT

• MANAGEMENT ABILITY

FINANCIAL POSITION AND PROGRESS

• SHOULD PROVIDE FINANCIAL STATEMENTS– AT MINIMUM AN UPDATED YEAR-END

BALANCE SHEET

• LOOK AT– ACCRUED LIABILITIES– CONTINGENT LIABILITIES

• UNAVAILABLE ASSETS– HOMESTEAD EQUITY– CO-OP STOCK

• NON-PRODUCTIVE ASSETS• NET WORTH OR EQUITY PROVIDES

A MEASURE OF RISK-BEARING CAPACITY

REPAYMENT CAPACITY

• SHORT TERM REPAYMENT CAPACITY IS PRIMARILY DETERMINED BY CASH FLOW PROJECTIONS

• BORROWERS TEND TO OVERESTIMATE REVENUES AND UNDERESTIMATE EXPENDITURES

• PROFITABILITY ANALYSIS IS INCREASING IN IMPORTANCE

COLLATERAL

• THE PURPOSE OF COLLATERAL IS TO SECURE THE LOAN AND PROVIDE A SOURCE OF REPAYMENT IN THE EVENT THE LOAN IS NOT REPAID DUE TO DEFAULT, DEATH OR DISABILITY

• EVALUATE COLLATERAL VALUE AS THE EXPECTED VALUE AT THE DUE DATE OF THE NOTE OR AT THE DATE OF NEXT PAYMENT

• COLLATERAL VALUE CAN DECLINE OVER TIME (ie. EQUIPMENT)

LOAN PURPOSE

• A SOUND LOAN IS ONE THAT EFFECTS THE PROFITABILITY OF THE BUSINESS AND PROVIDES A SOURCE OF REPAYMENT

• THE PURPOSE OF THE LOAN CAN DETERMINE THE REPAYMENT TERMS