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Loans and Interest Rates Agriculture Credit

Loans and Interest Rates Agriculture Credit. Suppose we own a farm and are looking for one of these tractors?. Cost: $225,000.00. Role of Credit in Agribusiness. I. There are three types of general loans A. Short term- Used to purchase inputs

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Loans and Interest Rates Agriculture Credit

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  1. Loans and Interest RatesAgriculture Credit

  2. Suppose we own a farm and are looking for one of these tractors? Cost: $225,000.00

  3. Role of Credit in Agribusiness I. There are three types of general loans A. Short term- Used to purchase inputs B. Intermediate term- loans are generally used to purchase breeding stock, machinery or equipment C. Long Term- loans usually based on real estate or improvement to real estate

  4. Role of Credit in Agribusiness II. Sources of Credit A. Short term credit- 1) One Year or less 2) Used for Supplies or Inputs A. seed, feed, chemicals, consumable materials Sources: 1) Seed/ Chemical Companies, Feed Co. 2) Contract Farming- Foster Farms

  5. Role of Credit in Agribusiness B) Intermediate Term Credit- 1) One to ten years 2) Used to purchase equipment, breeding livestock, machinery 3) normally covered by assets as collateral Sources: 1) John Deere- Equipment Purchases 2) GMAC 3) Farm Credit

  6. Role of Credit in Agribusiness C. Long Term 1) 10+ Years 2) Secured with a mortgage on the property. Sources: 1) Federal Land Bank 2) Commercial banks 3) Individuals

  7. Loan Terminology III. Loan Terminology 1) Installment- one of the parts which the principal borrowed is divided when payment is made over several time intervals. 2) Simple Loan- this type of loan is repaid (principal and interest) is made on the maturity date of the loan.

  8. Loan Terminology 3) Amortize- repaying the principal borrowed in a series of installments. Installments cover both principal and accrued interest 4) Balloon Loan- this type of loan generally calls for periodic payments that do not amortize the loan by its maturity date, leaving a balance due to be paid in a lump-sum.

  9. Loan Terminology 5) Open End Loan- with this type of loan a variable amount of may be borrowed instead of getting a loan for a fixed amount. 6) Amortized Loan- a loan where the note calls for periodic payments of principal and interest that will reduce the principal balance to zero

  10. Loan Terminology 7) Simple Interest- the method of calculating the dollar interest cost accrued (due) for a specific part of the term (time) of a loan. A) Formula # 1: Interest = Principal (X) Interest (X) Time Example: $50,000.00 loan, 8% simple interest, what is the annual interest $50,000 X .08 X 1 = $4,000.00 What is the daily interest? $50,000 X .08 / 365 = $ 10.96

  11. Simple Interest $75,000.00 X .045 = $3375.00 • Suppose we want to buy a tractor with a cost of $75,000.00, but want to finance it for a year until we get the money from our crop. John Deere credit will allow us to finance this tractor at 4.5% interest. What is the cost of financing this tractor for a year? Remember : • interest is the cost of the loan. • Show all of your work

  12. Simple Interest /365= $9.25 $2220.00 $77,220.00 We get our crop check early! We are ready to pay off our tractor 240 days after we took out the loan. What is our interest for 240 days? $75,000 X .045 = $3375.00 $9.25 daily interest X 240 days= What is the total final payment for our loan? Principal + Interest = total cost $75,000.00 + $2220.00 =

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