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Much has been said about the availability of credit in today’s world of troubled markets, failing businesses and loan losses.
Credit is certainly still available, but in seeking a loan you need to visit your prospective lender armed with a proposal that is reasonable and easily understood by the loan officer.
You need to address, in a written business plan, what are referred to as the “Five Cs of Credit,” namely character, capacity, conditions, capital and collateral.
Character deals with your credit history as evidenced by a current credit report issued by one or more of the three major credit reporting agencies.
Every person is assigned a credit score by these firms based on their credit history.
Capacity deals with a loan applicant’s ability to repay the loan based on a sound, realistic projection of income, operating and living expenses and debt repayment. The income must be calculated using reasonable yields and documentation of available markets for any non-traditional enterprises or products.
Further, if this is a newer enterprise, you must document either your own expertise in this area or detail any assistance available through the Cooperative Extension Service or similar resources.
Conditions entail any requirements that must be met to assure the greatest possible chance of success for the proposed operation.
Capital involves the availability of needed land, livestock, equipment, etc., in order to effectively carry out the planned operation.
Finally, collateral entails the amount, type and value of property available as security for the requested loan.
Whether you are visiting your local bank, a member of the Farm Credit System or a Farm Service Agency office, having a well-prepared plan and being able to answer the loan officer’s questions before they are even asked, gives you a leg up on getting an agricultural loan. Always be honest and forthright in your dealings with the loan officer and you will see that they will reciprocate, both during the time of obtaining a loan and in future servicing of your account.
And remember, not everything in farming is black and white. If you will explain and document the “gray” areas for your loan officer, they will do their best to assist you in your loan needs.
Lawrenceburg resident Mitch Whittle is a farm loan chief with the USDA’s Farm Service Agency.