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Ag Banking Credit Worthiness

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Ag Banking Credit Worthiness Powered By Docstoc
					                 Ag Econ 330


Jayme Ungs & Doug Lenhart
April 22, 2009
Presenters
 Jayme 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 Worthiness
 The 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 Worthiness
 Keys to Credit Worthiness

  – Use of Hedging & Marketing techniques

  – “Know your numbers” / Breakevens

  – Management Knowledge

  – Integrity

  – Communication Skills
Ag 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 Worthiness
 Information Review

  – Upcoming Year Projections
     – Income / Expense
     – Planned Asset Purchases or Sales
     – Cash Flow Coverage
Ag Banking & Credit Worthiness
 Annual 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 Worthiness
 Revolving 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 Worthiness
 Term 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 Worthiness
 Beginning / Young Farmer Loan Assistance
 Programs

  – FSA
     – Direct Borrowing
     – Guaranteed Borrowing
     – Loan Participation
  – IADA
     – Reduced Interest Rate program
     – Participation Loan Program
Ag Banking & Credit Worthiness
 Credit 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 Worthiness
Ag Banking & Credit Worthiness
Ag 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

				
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posted:9/22/2012
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