MSU Extension explores the Five C’s of Credit for new and beginning farm managers
Print
EmailThe key to lenders recognizing your farm’s potential for success begins with understanding what they look for in a loan request.
Starting any business often means making cash investments. For a farm business, those investments can require more cash than you have available, especially if your operation needs capital assets such as supplies, equipment, livestock or real estate. Obtaining a farm loan is one option to help you make those investments and grow your business.
Loans give you the ability to grow your business – whether it’s for purchasing land, building, increasing your livestock herd, or even obtaining better, more efficient equipment. When used as part of your financial management plan, a loan can allow you to make necessary business purchases while retaining your cash. Retained cash can cover routine expenses such as operating costs, improvements or repairs, marketing, or purchasing supplies. You may also consider a loan to help build cash reserves, rebuild after a natural disaster, or refinance older loans to make cash more available. Loans can help manage business risks.
Introducing the latest bulletin from Michigan State University Extension’s Beginning Farmer DEMaND Series: E-3428 Farm Loans and Credit Underwriting: The Five C’s of Credit.
This publication reviews what a lender looks for in a loan application and how they look for assurances that approving a credit request is a good decision. Lenders use a process called credit underwriting in which they evaluate whether the risk involved with a loan request is worth taking on. Readers will learn that this process involves more than just financial numbers and projected profits.
Applying for a loan can be an important part of managing your farm. It is also something that can cause you, as a beginning farmer, a lot of anxiety. You are asking to be loaned funds on credit. Credit is the act of borrowing with a promise that you’ll repay funds in the future. To obtain those funds, you need a lender to recognize that your business can be successful. The key to achieving that recognition begins with understanding what a lender is looking for in a loan request.
Download the latest bulletin in the Beginning Farmer DEMaND (Developing and Educating Managers and New Decision-makers) series today!
The Beginning Farmer DEMaND Series helps the next generation of farm operators learn about financial and business management strategies. These strategies will help develop them into managers and decision-makers on the farm. Whether representing a transition of generations, from an employee to owner, or a new entrant to the business, the DEMaND series can offer assistance. Visit the series website for articles, bulletins, webinar recordings and more.
