Preparing for your Lender “Cultivating Success: …...Operating lines of credit Equipment...
Transcript of Preparing for your Lender “Cultivating Success: …...Operating lines of credit Equipment...
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Preparing for your Lender “Cultivating Success: Agricultural Entrepreneurship”
November 14, 2018
Jess Sarsfield Relationship Manager-AgVision
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Contact Information www.northwestfcs.com
Northwest Farm Credit Services Jess Sarsfield
Relationship Manager-AgVision [email protected]
360-707-2463
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16,675 customer-members 44 Branch locations
713 Employees 14 Directors
187 Local advisors
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Real estate financing Operating lines of credit
Equipment financing Crop insurance
Country home loans
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Northwest FCS Locations
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Helping new ag producers grow.
Young (35 years of age or younger) Beginning – 10 years of farm management experience or less Small – annual gross farm income less than $250,000
Outreach Focus: Military Veterans, urban/local producers
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AgVision Partners/Tools
q We work and partner with government agencies q Farm Service Agency (FSA)
q FSA Guarantee: 90% q This reduces risk when collateral position is weak, which is common
with our AgVision customers q FSA Down Payment Program (5-45-50)
q The borrower brings a 5% down payment, the FSA finances 45% and Northwest FCS finances 50%.
q Northwest required to issue a 30 year note q Washington State Beginning Farmer Bond Program
q Borrow up to $517,700 with below-market interest rate loans, if you have never owned and operated farm ground before
q Payment Assistance Loan (PAL) Program is a loan program in partnership with the State that helps with down payment when using the Bond program.
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RateWise™ Program q Rewards young, beginning and small
producers for continuing management education with interest rate reductions on new loans
q Participants can earn interest rate reductions of 0.25%, 0.50% and 0.75% for three years
q Credits earned for Northwest FCS workshops, university conferences, industry specific workshops, Farm and Food Expo, etc.
q Register at northwestfcs.com/RateWise
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How Lending Decisions are Made 5 C’s of Credit
q Character q Capital q Capacity q Collateral q Conditions
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Character q Management experience q Your experience in the industry q Business plan
q Three-legged stool q Production q Processing q Marketing
q Credit history q Have a good credit score
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Credit Report q What is a credit score and why is it important
q Predicts financial risk over time q Credit scoring is used by lenders, insurers, and others to evaluate
your credit behavior q Credit Score above 660 q Have no late payments (payment history 35% of FICO) q Have low credit card balances (amounts owed 30%) q Have no outstanding collections, bankruptcy, foreclosure q Credit history (length 15% of FICO score) q Other (Credit mix in use & new credit – 20%) q Review your credit report at least once a year
www.annualcreditreport.com
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How Do I Rate?
q Different models have different ranges q Credit Scores typically range between 300 to 850
Excellent Credit: 750+ Good Credit: 700-749 Fair Credit: 650-699 Poor Credit: 601-649 Bad Credit: Below 600
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Credit Bureau Reports q Why do lenders look at these scores?
History shows: q Above 800 – less than 1% delinquency rate q Above 700 – less than 5% delinquency rate q Under 600 – 51% delinquency rate q Under 550 – 71% delinquency rate
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Capital q What you own versus what you owe q “Snapshot” in time of your financial position q Financial Statement: Balance Sheet q Financial ratios
q Debt/Asset ratio = Total Liabilities ÷ Total Assets q Want to see this ratio below 65%
q Working Capital = Current Assets – Current Liabilities q Must be positive q Funds for down payment and expansion
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Capacity q Income and expenses of the operation q Your ability to repay the loan q Financial Statements:
q Income Statement q Net income = Revenue less Expenses
q Net income margin of 10% of your gross income. q Cash Flow Budget
q Monthly projection of Revenue and Expenses q Financial roadmap for new enterprises q Identifies need for operating financing to cover
cash flow deficits
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Collateral q The security that backs up the loan
q Typically the asset being purchased q Examples: crops, equipment, real estate
q Match collateral with type of loan q Operating loan – crops, products, equipment q Real Estate loan – ground being purchased
q Advance Rate = Loan Amount/Collateral Value q Example: Equipment = 75% maximum advance
rate
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Conditions q Structure of the loan q Term = length of loan q Rate = fixed, variable, or combination interest
rates q Repayment schedule = monthly or annual q Liable Parties = borrowers, co-signers, or
guarantors q Covenants = life insurance, collateral monitoring
reports, capital purchase restrictions, etc. q If there is weakness in the other C’s, conditions
can be used to mitigate the risk
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Questions?