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Jeff Peterson Farm Service Agency Ricky Adams Northwest Farm Credit Services

Jeff Peterson Farm Service Agency Ricky Adams Northwest Farm Credit Services. Cultivating Success. Discussion Points . Borrower-Lender Relationship: A Two Way Street How to put a successful package together

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Jeff Peterson Farm Service Agency Ricky Adams Northwest Farm Credit Services

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  1. Jeff Peterson Farm Service Agency Ricky Adams Northwest Farm Credit Services Cultivating Success

  2. Discussion Points • Borrower-Lender Relationship: A Two Way Street • How to put a successful package together • How lenders like the Farm Service Agency and Northwest Farm Credit Services can help

  3. The Borrower-lender Relationship: A Two Way Street • What to look for when selecting a lender: • Choose a lender that has an understanding of your industry and its people • Look for a lender with the capacity to meet your borrowing needs • Look for a lender with competitive loan products and services

  4. The Borrower-lender Relationship: A Two Way Street (continued) • Choose a lender with a long-term presence in your industry • Select a lender that treats you like more than just a transaction • Do business with a lender that values trust, confidentiality and ethics • Select a lender that communicates rates, terms, and conditions in a manner you can understand.

  5. The Borrower-lender Relationship: A Two Way Street(continued) • How to be a valuable partner in the lending relationship: • Provide your lender with accurate financial information • Provide a business plan • Maintain an honest relationship with your lender • Perform a personal credit bureau check on a yearly basis • Maintain open and regular communication with your lender

  6. How are loan decisions made?

  7. The 5 C’s of Credit Character – Management skills and credit history Capital – What you own and owe Capacity – Can you repay the loan Collateral – Security that backs up the loan Conditions – Terms of the loan *Most lenders use this method or a similar method to analyze commercial loan applications

  8. Character Your experience in the operation Operating/Production Financial Marketing Have a business plan in place Have a good credit score

  9. Your Business….Start With the End in Mind • What are your goals? • How will you measure accomplishments? • Does your team understand your vision for the future? • How do you feel about what you do?

  10. Business Plan • General • Name • Date • Production year • Financial • Current year income and expense records • Current balance sheet, projected balance sheets • Past three year’s tax return • Complete cash flow budget • Farm Plan • Land-base -- list each tract, total acres, location, owned or leased (include terms). • Number of acres and crops to be grown on each tract, yield, estimated price per unit • Livestock -- list total number by classification (cows, bulls, etc.) List number of head to be produced, pounds per head for sale, and estimated price per pound. • Conservation practices • Marketing plan including when and how products will be marketed

  11. Business Plan (continued) • Risk Philosophy • Insurance – do you have Life or Health insurance. • Crop Insurance - crop hail, multi-peril, amount of coverage, cost, agent and company. • Interest rate – Fixed, variable, or combination • Expansion Plans • Plans to purchase real estate. • Plans to rent additional real estate. • Proposed source of capital. • Proposed repayment plans. • Equipment purchases – date, item, cost, and type of financing. • Personal • Experience • Goals – list short-term and long-term

  12. Character Credit Report What is a credit score and why is it important Predicts financial risk over time Credit scoring is used by lenders, insurers, and others to evaluate your credit behavior Credit Score above 650 Have no late payments Have low credit card balances Have no outstanding collections, bankruptcy, foreclosure Review your credit report at least once a year www.annualcreditreport.com

  13. Capital Your financial position – what you own and what you owe Financial Statement: Balance Sheet Financial ratios Debt/Asset ratio = Total Liabilities ÷ Total Assets Want to see this ratio below 65% shows the producer has a stake in the game, will make good financial and management decisions. Working Capital = Current Assets – Current Liabilities Must be positive Funds for down payment and expansion

  14. Capacity Income and expenses of the operation Your ability to repay the loan It’s one of the most important factors for any operation Financial Statements: Income Statement Net income = Revenue less Expenses Net income margin of 10% of your gross income. Cash Flow Budget Monthly projection of Revenue and Expenses Financial roadmap for new enterprises Identifies need for operating financing to cover cash flow deficits

  15. Collateral The security that backs up the loan Examples: farm ground, farm equipment, crop inventories, livestock, etc. Match collateral with type of loan Operating loan – crops Equipment loan – machinery & equipment Real Estate loan – farm ground being purchased Generally, a lender would like to be below 80% Loan Amount/Collateral Value

  16. Conditions Structure of the loan Term =length of loan Rate = fixed, variable, or combination interest rates Repayment schedule = monthly, semi-annual, annual Liable Parties = borrowers, co-signers, or guarantors FSA guarantee Covenants = crop insurance, life insurance, collateral monitoring reports, capital purchase restrictions, etc. If there is weakness in the other C’s, conditions can be used to mitigate the risk to Northwest FCS and customer

  17. Financial Resources for Beginning Farmers and Ranchers Traditional Commercial Lenders Farm Service Agency Northwest Farm Credit Services

  18. Farm Service Agency Direct and Guaranteed loan programs FSA has Farm Loan staff in eight locations in Washington State Locations are: Lynden, Chehalis, Wenatchee, Ephrata, Yakima, Pasco, Spokane, and Okanogan.

  19. Contact Information • www.fsa.usda.gov/wa • Farm Service Agency Washington State Office (509)323-3000 • Whatcom County FSA (360) 354-5658 Mark Turner , Farm Loan Manager Lewis County FSA (360) 748-0083 Jeff Peterson, Senior Farm Loan Officer

  20. FSA Farm Loan Programs FSA makes direct and guaranteed farm ownership (FO) and operating loans (OL) to family-size farmers and ranchers who cannot obtain commercial credit from a bank, Farm Credit System institution, or other lender.

  21. FSA Farm Loan Programs (continued) FSA loans can be used to purchase land, livestock, equipment, feed, seed, and supplies. Our loans can also be used to construct buildings or make farm improvements.

  22. Direct Loan Program • $300,000 Maximum OL Loan Limit • $50,000 Microloan (Variation of our Regular OL) • $300,000 Maximum FO Loan Limit Includes BFDP “Beginning Farmer Downpayment Program” • Operating Financing – 7 year max term • Used for things like machinery, cattle, input costs • Farm Ownership – 40 year max term For the purchase of real property or building improvements • Emergency Loans - Production and Physical Losses $500,000 Maximum Loan Limit

  23. Microloans • Use of Microloans – Same as regular OL program • Simplified Application Process • Experience Requirements allow working with mentor • Security Requirements • Rates and Terms

  24. Youth Loan Program • For kids involved in 4-H or FFA or similar programs, ages 10 to 20 years old. • Maximum loan amount $5000. • Maximum term 7 years. • Possible projects include • Livestock and crop production • Raising-show livestock for local fair • Raising produce for farmers market

  25. Guaranteed Loans • Made by local lenders • Maximum loan limit $1,392,000* • Various terms based on type of security • Fee 1.5% *indexed

  26. Beginning Farmers and SDA • FSA targets funding annually for Beginning Farmers and Socially Disadvantaged Farmers

  27. Who May Borrow Be a family-size farmer; Have a satisfactory history of meeting credit obligations; For direct OL loans, have sufficient education; training, or at least 1-year's experience in managing or operating a farm or ranch. For direct FO loans, applicants must have participated in the business operations of a farm or ranch for 3 years; (education, business management, or military leadership may substitute for 1 year’s experience for FO) Be a citizen of the United States (or a legal resident alien), including Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, and certain former Pacific Island Trust Territories;

  28. Who May Borrow (continued) Be unable to obtain credit elsewhere at reasonable rates and terms to meet actual needs, Possess legal capacity to incur loan obligations, Not be delinquent on a Federal debt, Not have caused FSA a loss by receiving debt forgiveness (certain exceptions apply), and Be within the time restrictions as to the number of years they can receive FSA assistance.

  29. Who is Northwest FCS? Part of the Farm Credit System A customer-owned lending cooperative Serving Washington, Oregon, Idaho, Montana & Alaska With over 600 employees & 46 offices Providing approximately $10 billion in financial services to farmers, ranchers, agribusinesses, commercial fishermen, timber producers, & rural home owners

  30. Northwest FCS Locations

  31. Northwest FCS Loan Products Loan Products Real Estate purchase Country Home Loans Operating expenses Livestock and equipment purchases Refinancing existing debt JumpStart – startup capital or operating loan Leading crop insurance provider in the Northwest Provide leasing services; appraisal services; and life, mortgage, and disability insurance programs.

  32. Northwest FCS AgVision Program AgVision A program designed to meet the needs of customers with at least one of the following characteristics: Young (35 years of age or younger) Beginning (10 years or less agricultural experience) Small (Producer with annual gross farm production of less than $250,000) Outreach initiatives to minority and military veteran producers

  33. Northwest FCS AgVision Benefits of the AgVision Program Shareholder of Northwest FCS and eligible for patronage. Reduced or waived loan origination and appraisal fees Flexible underwriting standards Competitive interest rate Reimbursement opportunities for education and technology purchases Access to our knowledge center that provide industry studies and benchmarks Leadership opportunities through our Local AdvisorCommittees

  34. RateWise • Learn and Earn! Participate in educational programs to improve your management skills and industry knowledge. • Accumulate RateWise credits to qualify for interest rate reductions on your next loan or renewal. • Register for RateWise online at NorthwestFCS.com/RateWise • Free to register, do not have to be existing Northwest FCS customer! • Eligible education programs: • Northwest FCS’ Business Management Center courses • University extension programs • Farm Service Agency programs • Industry group meetings and conventions • Programs hosted by other resources to improve management and production skills NorthwestFCS.com/RateWise

  35. AgVision Partners • We work with government agencies to mitigate risk and provide access to financing when the borrower might otherwise be ineligible • Farm Service Agency (FSA) • FSA Guarantee: 90% • Reduces risk when collateral position is weak, common with AgVision customers • FSA Down Payment Program (5-45-50) • Borrower makes a 5% down payment, FSA finances 45%, and Northwest FCS finances 50% • Northwest provides a 30-year term to aid cash flow and repayment capacity

  36. AgVision Partners • Washington State Housing Finance Commission (WSHFC) • Only available in Washington • Beginning Farmer/Rancher Bond Financing Program • Enables us to deliver a low interest rate on real estate loans and equipment loans - historically less than 4% • Applicant must meet WSHFC qualifications

  37. QUESTIONS? Ricky Adams Relationship Manager-AgVision (206) 691-2022 Ricky.Adams@northwestfcs.com northwestfcs.com Northwest FCS-Seattle 2157 N Northlake Way, Ste 120 Seattle, WA 98103-9184

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