Ag Econ 330

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

2. 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

3. 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

4. Ag Banking & Credit Worthiness • Keys to Credit Worthiness • Use of Hedging & Marketing techniques • “Know your numbers” / Breakevens • Management Knowledge • Integrity • Communication Skills

5. 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

6. Ag Banking & Credit Worthiness • Information Review • Upcoming Year Projections • Income / Expense • Planned Asset Purchases or Sales • Cash Flow Coverage

7. 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)

8. 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”

9. 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

10. 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

11. 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 • 600 700 800

12. Ag Banking & Credit Worthiness

13. Ag Banking & Credit Worthiness

14. Ag Banking & Credit Worthiness