Ag Econ 330 Jayme Ungs & Doug Lenhart April 22, 2009

Presenters  Jayme 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 Worthiness  The 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 Worthiness  Keys to Credit Worthiness –Use of Hedging & Marketing techniques –“Know your numbers” / Breakevens –Management Knowledge –Integrity –Communication Skills

Ag 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 Worthiness  Information Review –Upcoming Year Projections –Income / Expense –Planned Asset Purchases or Sales –Cash Flow Coverage

Ag Banking & Credit Worthiness  Annual 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 Worthiness  Revolving 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 Worthiness  Term 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 Worthiness  Beginning / Young Farmer Loan Assistance Programs –FSA –Direct Borrowing –Guaranteed Borrowing –Loan Participation –IADA –Reduced Interest Rate program –Participation Loan Program

Ag Banking & Credit Worthiness  Credit 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 –

Ag Banking & Credit Worthiness

Farm # 1Farm # 2Farm # 3Farm # acreCustom Hog1500 acre550 acre Corn / SBFeeding / Row CropCorn / SB Age Total Mach $804,09195,700158,484159,165 Mach / Acre Mach Debt578,71334,30030,344103,311 Mach Debt / Ac Working Capital148,07038,727134,75341,094 Total Assets2,229,791900,6601,553,5801,644,386 Total Debt1,385,084667,1451,094,0081,071,563 Land Debt / Ac005701,333 Debt/Asset Ratio62.12%74.07%70.42%65.16% Debt / Net Worth Debt Service Cap Off Farm IncomeYes NoYes