Farm Service Agency (FSA) Direct Loans Annual Operating & Equipment - $300,000 limit Annual Operating – 1 year with 1.375% Interest Rate Equipment Loans up to 7 years Farm Ownership (Real Estate) $300,000 limit up to 40 year loan with 3.5% fixed interest rate. Beginning Farmer Down payment loan 5% down payment from farmer 45% Loan from FSA (not to exceed $225,000) FSA 2 nd Mortgage 1.5% fixed for 20 years 50% 1 st Mortgage loan from other creditor Minimum 20 year note with 30 year amortization

Farm Service Agency (FSA) Guaranteed Loans (Outside Creditor obtains a Guarantee from FSA) Total Limit is $1,302,000 combined Operating & Farm Ownership Operating can be up to a 5 year line of credit Equipment loans can be up to 7 years Farm Ownership loans (Real Estate) can be up to 40 years More information on FSA loan programs can be found at: ooklet.pdf ooklet.pdf

Minnesota Rural Finance Authority (RFA) Farm & Seller assisted Loan programs for real estate purchases RFA will provide a 45% participation in a first mortgage up to $300,000 participation. Fixed interest rate at 2.75% Aggie Bond Program $501,100 Maximum can be used for purchase of animals, machinery or real estate or real estate improvements subject to some restrictions. Tax benefits for lender and interest rate reductions for borrower Ag Improvement Program For physical improvements to the farm RFA will provide a 45% participation in a first mortgage up to $300,000 participation. Fixed interest rate at 2.75% More information on RFA loans can be found at: px px

Lender Programs AgStar & other Farm Credit Lenders Have an active young farmer programs Base loans on Character of the borrower Normally have to meet the collateral requirements of the lender Will use FSA & RFA programs to reduce risk & or assist in providing adequate credit to the operation Banks Normally Banks will fund loans to young farmers under similar terms Will use FSA & RFA programs to reduce risk & or assist in providing adequate credit to the operation

5 - Credit Factors Character Capital Capacity Collateral Conditions

Character Education & Training Participation in FFA & 4H Extra-curricular activities and achievements Work history Family Background Attitude toward credit Credit History Credit Score Future Goals & Plans Understanding of and mitigation of risk in the business Past achievements in farming & business

Capital Net Worth percentage (Net Worth / Total Assets) This percentage expresses what percentage of the assets are owned by the borrower as opposed to financed by the lenders Prefer it to be equal to the borrowers age. Current Ratio (Current Assets / Current Debts) This ratio measures liquidity or ability to pay debts as they come due Needs to be positive – greater than 1 to 1 ratio Lenders prefer it to be 1.5 to 1 or greater

Capacity (Debt Repayment) Measures the businesses ability to pay its debt payments and replace its machinery and equipment from cash generation over time. Both on an actual (3 year historic) and a projected basis needs to be 110% Measured as net cash flow from business before interest payments divided by the sum of the debt payments and a budget for capital asset replacement

Collateral Assets that are pledged (mortgaged) to insure repayment of the loan Normally lenders do not like to lend more than 75% of the value of the collateral Operating & Equipment loans are generally secured by the personal property of the borrower such as: Equipment, machinery, crops, growing crops, livestock, accounts receivable and other rights to payment, patents, trademarks and other intangibles Real Estate Loans are generally secured by the land and buildings that exist on that land of the borrower and some lenders will limit real estate loans to 65% of value or the amount that can be cash flowed by renting the property out

Conditions Loan conditions are usually set by the lender and can include things like: Inventory and asset reports by the borrower Periodic updates on the borrowers financial condition Appraisal and re-appraisal of the assets Interest Rates and interest rate reset timing Financial Targets that may result in a loan default or cause the borrower to have to make a payment Periodic visits by the lender to review the operation Loan conditions tend to be negotiable to a degree between the lender and the borrower and should be clearly understood by the borrower before they are agreed to

Conclusion There are many programs and opportunities available for young farmers to get and establish credit. All of these programs require the borrower to have good character and a good credit history. Character can be established by prudent use of credit and by the borrowers actions to get the education, training and experience necessary to operate the business. FFA & Agricultural education are key components of this!