The Farmer’s Five C’s of Credit

Accessing credit or funds for farm endeavors is a challenge that many prospective buyers of Florida farms for sale face. Many times, agricultural financing is necessary for the acquisition of farming property, continuing crop production, expanding operations, or venturing into other agricultural enterprises.


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Farmers can improve their chances of success by gaining a better understanding of agricultural lending and business planning. When deciding which loans to make, most agricultural lenders go by what are known as the Five C’s of Credit: Character, Capacity, Capital, Collateral, and Conditions.


In short, character can be summed up as your managerial ability and credit score. Typically, in this area agricultural lenders will look for such things as training, knowledge, experience, personal and professional integrity, financial competency, and your current and future goals for the business.


Capacity is a measure of the enterprise’s liquidity. Will your farm business be able to support repayment of the loan? Agricultural lenders want to see that your business is bringing in more income than what is being paid out in expenses and loan payments, and will look at projected income statements and statement of cash flows to verify this information.


In this area, agricultural lenders will look for the net worth of the applicant. Net worth can be calculated by finding the difference between your total assets and total liabilities. Another factor that agricultural lenders may take into consideration is the equity investment in the enterprise by the applicant. The amount the individual has invested in the enterprise will give the lender insight on how committed the individual is to the business plan.


Collateral is what is used to secure the loan. When deciding on making a loan on the purchase of Florida farms for sale, agricultural lenders must take into consideration all possibilities, even default. If the borrower is unable to repay the loan, how will the lender be compensated? Collateral is any item of value, such as land, houses, cars, and equipment that lenders can be hold as security on the loan, and be repossessed in the event the loan goes into default.


Even if all other requirements are met, an agricultural lender may decline a loan based on the conditions of local markets, consumer trends, economic predictions, environmental considerations, as well as industry specific conditions. The lender may also look at the intended purpose of the loan to make sure that it makes good business sense.

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