Plain Dirt Financing Financial Information for Amish Farmers SPRING 2022
FIVE TIPS TO BECOME A BETTER BORROWER Andrew Stutzman, Lending Manager
3. PAY ON TIME Once you’ve received a loan, one of the best things you can do to show your lender you’re a valuable customer is to pay on time every month. By paying on time, you show your lender that you are responsible, reliable, and financially strong. If your lender sees that you regularly pay late, they are likely to doubt your commitment or ability to repay existing and future loans. There are various consequences to paying late; you may be charged a late fee according to the terms of your loan, and if your lender reports to the credit bureau, your credit report will show payments over 30 days past due. Consistently making payments on time is the best way to improve your credit score and your credit reputation within your financial institution.
4. REVOLVE YOUR LINE OF CREDIT Building a strong relationship with your lender can be a key component of the long-term success of your business. A solid relationship will help your lender be able to better assist you in both good times and bad. Here are five ways to position yourself as a confident borrower.
1. COME PREPARED FOR YOUR MEETINGS
Before you meet with your lender, spend some time preparing for the meeting. This will help both you and the lender get the most value out of the meeting. Preparing the following items for your first meeting would be a great start: •
An itemized list of startup expenses
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Your financials: tax returns, notes of account balances, inventory, and other items that will aid in creating a balance sheet
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A simple business plan, including amounts for what you expect to produce, projections for the income and expenses of the operation, and how you plan to sell your product A list of questions for your lender that you’d like to discuss
2. OFFER A DOWN PAYMENT
Saving up some extra cash can be helpful when pursuing a new investment. Depending on the loan request and financial position of the borrower, a down payment is not always necessary. But in some instances, it could be the difference in getting a loan. Offering a down payment shows your lender that you’re committed and willing to put some ‘skin in the game’. This is most helpful to your loan request if it’s your own cash, rather than a private loan from a family member. Even if the down payment is not necessary, having extra cash on hand to create some cushion on your operating expenses will help you succeed.
You have probably heard your lender say that they expect you to revolve your line of credit regularly. Revolving the line means to pay the balance to zero. Lenders look for this to happen each operating cycle at a minimum – once per year for certain operations, and more often for others (for example, a line of credit used for independent broiler flocks). Lines of credit are intended to be used for operating expenses, so naturally it makes sense to repay the loan with the proceeds of the operating cycle. A line that isn’t repaid within the operating cycle indicates a negative cash flow situation, which isn’t sustainable long-term. When a line of credit is not regularly revolved and carries a balance near the limit for long periods of time, the lender starts to doubt the borrower’s financial health. In contrast, a line that is used sparingly or that is regularly revolved demonstrates to the lender that the borrower is financially strong.
5. COMMUNICATE PROACTIVELY
Things don’t always go as planned. If you find yourself struggling financially, one of the best ways to maintain a good relationship with your lender is to communicate proactively. Let your lender know if you’re falling behind or struggling to revolve your line of credit. The lender will do their best to work with you on a solution. The sooner you begin the discussion, the more options there will be available to you. If you wait until the last minute to reach out for help, options may be more limited.
If you have any questions about these tips to become a better borrower, or are ready to meet with a lender to discuss your financing options, give us a call at 888.339.3334.
SPRING 2022
THE POWER OF YOUR CREDIT SCORE Kelvin Ranck, Loan Officer
As you think about farm management and financials, one thing that can be easily forgotten or go unnoticed is your credit score. Your credit score should be viewed as a tool that can be used to borrow money for your home, farm, or equipment. It reflects your overall financial health and helps lenders determine how likely you are to make loan payments on time. Your credit score can also impact your interest rate for a loan.
HOW ARE CREDIT SCORES CALCULATED?
There are three consumer credit bureaus that collect and analyze credit information: TransUnion, Equifax, and Experian. These three agencies compile information on your open, closed, and cancelled accounts like loans, liens, judgments, and other public records. Farm Credit reports to the credit bureau. This means that when you get a loan through Farm Credit and as you make your payments, it creates and builds your credit score.
Credit scores have a range of 300 – 850 and use five factors in the scoring model: payment history, debt owed, average age of accounts, types of credit used, and new credit. The higher your credit score, the better. The average United States credit score is currently 711. Note: If you do not have a credit score, you may still be eligible for a loan with Farm Credit. We can use your tax returns, balance sheet, and other income and expense records to verify your repayment ability for a loan.
WHAT GOES INTO YOUR CREDIT SCORE? Payment History: 35 percent of your score. The history includes how many late payments you’ve had and how many days late the payments were made.
Amounts Owed: 30 percent of your score. This is your credit utilization (how much of your credit line was used).
Length of Credit History: 15 percent of your score. This includes how long your credit accounts have been established, the oldest, newest, and average age of accounts, and how long it has been since you used accounts. For example: if you paid off a loan ten years ago, that will not add to the strength of your score like a loan that was paid back one year ago. New Credit: 10 percent of your score. Opening several credit accounts all in one short period represents greater risk, especially for people who have only a short credit history.
Credit Mix: 10 percent of your score. This takes into account how many loans you have, and the types of loans they are. For example: an individual that has an equipment loan, a farm loan, and a Line of Credit (LOC) will have a better score than the individual only has an equipment loan. This is because there were multiple loans and multiple types of loans that were all paid on time.
FOUR WAYS TO IMPROVE YOUR CREDIT SCORE: 1. MAKE ALL LOAN PAYMENTS ON TIME
Thirty five percent of your credit score is calculated through your payment history. As you make your payments each month, the timing of these payments are recorded. Typically, payments that go 30 or more days past due are reported to the credit bureau, and can significantly damage your credit. When you make your payment on time, it causes your payment history to look better and therefore your credit score will increase as the months go by.
FICO CREDIT SCORE RANGES
RATING
<580
Poor
Your score is well below the average score of U.S. consumers and demonstrates to lenders that you are a risky borrower.
580 - 669
Fair
Your score is below the average score of U.S. consumers, though many lenders will approve loans with this score.
670 - 739
Good/Average
Your score is near or slightly above the average of U.S. consumers and most lenders consider this a good score.
740 - 799
Very Good
800 +
Exceptional
DESCRIPTION
Your score is above the average of U.S. consumers and demonstrates to lenders that you are a very dependable borrower. Your score is well above the average score of U.S. consumers and clearly demonstrates to lenders that you are an exceptional borrower.
Tip: Set your loan payments up on automatic payment. This will allow your payment to be made on time each month without having to remember or physically go to the bank. With Farm Credit’s AutoDraft program, a loan statement is still mailed to you each month, showing all the details of your upcoming payment and when it will be automatically drafted from your bank account.
of your score for a time, although there is a provision that allows you to apply with multiple lenders for a single loan request without having your credit score docked multiple times.
2. KEEP GOOD DEBT WITH COMFORTABLE LOAN AMOUNTS
In summary, your credit score can be a powerful tool to help you get loans to finance your farm’s growth and fuel new purchases. Your credit score is determined by a number of different factors, but the most impactful factor for your credit score is your timely repayment of existing loan accounts. Making your loan payments today impacts your ability to get good loans in the future with competitive interest rates.
Do not immerse yourself in lots of consumer debt. Although the action of getting loans and paying them back can build your credit, when lenders look at your credit report and see many open accounts or loans that are currently being paid down, they may doubt your ability to make payments on yet another loan.
3. USE ONLY A PORTION OF YOUR CREDIT LIMIT
If you utilize an Operating Line of Credit (LOC), use only a portion of the LOC. When a lender looks at your LOC history and sees that you’ve had your LOC fully drawn for the past year, they may doubt your financial strength and ability to pay the bills that you have. At some point during each year, make sure to pay your LOC down to zero. This shows a lender that you are profitable as a farm and able to handle another loan payment.
Note: It is ok to request and check your own credit score. When you order your own credit report from a reporting agency or an authorized organization, it will not affect your credit score.
Give us a call today at 888.339.3334 if you’d like to discuss your credit score and financing options.
4. LIMIT OPENING SEVERAL NEW CREDIT ACCOUNTS
If you’ve opened several new credit accounts over a short period of time, this will reduce your credit score. Too many new accounts or new inquiries can indicate higher risk to the lender. The credit bureau tracks both new loans and new inquiries. An inquiry occurs when you apply for a loan and the lender pulls your credit report as part of the application process. Each inquiry typically results in a small reduction
SPRING 2022
PRESORTED STANDARD U.S. POSTAGE
PAID
15 Eby Chiques Road Mount Joy, PA 17552
tobacco coverage Machinery, seed, fertilizer, and chemical costs continue to increase, which means you have a lot at stake as a producer. A Crop-Hail policy provides coverage both for hail and fire damage to your tobacco crops. This program can be purchased at any time and also covers the deductible portion of Multiple Peril Crop Insurance (MPCI) protection. MPCI and Crop-Hail coverages may both be eligible for payment on the same loss event. To speak with a Farm Credit Crop Insurance agent, call 888.339.3334.
COLUMBIA SC PERMIT 1160
