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
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