Many of you are fast at work in the fields, excited about the potential bountiful harvest. Livestock producers are counting their nickels and dimes, making a determination of how to make ends meet. I suggest you archive this Road Warrior column as you prepare for your next loan request. Easy credit of the last few years may be a thing of the past. State and federal regulations are stepping up scrutiny of credit files in an attempt to avoid potential widespread credit problems in agriculture.
Here are five ways you can decrease your chances of success in seeking credit in the coming environment if you are an agricultural producer.
Low Credit Score
Many lending institutions in agriculture are using credit scoring in their risk models. A surefire way to get yourself denied is by either you or your spouse having a credit score below 600. Below 650 will get you a long look; however, above 700 generally means low risk.
Credit After The Fact
Go out and purchase a new piece of equipment or land using your credit line or credit card as a down payment. Then come in and request credit from your lender. Be prepared for your agri-lender’s blood pressure to quadruple along with either high rates or an exit out the door.
Hold Out For The Highest Price
In Nebraska the other day, a lender indicated one of his customers was holding three years of corn, anticipating hitting the market when it peaks. This was occurring while he was requesting refinancing to meet expenses in planting this year’s crop.
Millionaires On Paper Who Never Earned A Dollar
Are you a producer who inflates your balance sheet assets by 10-20% a year, but barely show a profit? This group will be closely examined in the coming environment. Remember that cash flow and earnings pay loans back!
High grain prices have brought out exuberance in family living withdrawals from the business. In some cases, personal withdrawals are now exceeding $100,000 per family. I guess that’s moving on up!
Editor’s note: Dave Kohl, The Corn And Soybean Digest Trends Editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at [email protected].