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May 31, 2023

How Do the Five C’s Affect the Farm Loan Application Process

Learn more about the five Cs of credit lenders use to evaluate your farm loan application.  

The five Cs of credit is a common technique lenders use to evaluate your farm loan application and include character, capital, capacity, collateral, and conditions.  

  • Character: Borrower’s credit history and managerial reputation and capability. 
  • Capital: Borrower’s personal investment in the ag operation. 
  • Capacity: Borrower’s ability to repay the loan based on current income and debt. 
  • Collateral: Pledged real estate asset used to secure the loan. 
  • Conditions: Factors such as the interest rate and purpose of the loan. 

Getting an agricultural land loan requires a wealth of information, and it is invaluable for a borrower to know what a lender is looking for. AgAmerica’s Deal Operations Manager, Brevyn Foreman, shares his firsthand expertise in explaining the 5 Cs of Credit and how they relate to the farm loan application process. 

The Farm Loan Application Process: A Q&A with Lending Expert Brevyn Foreman

Brevyn Foreman, Deal Operations Manager at AgAmerica

Q: When considering a farm loan application, how do the “Cs” apply in terms of what AgAmerica is looking for in a borrower? 

A: We consider all the “Cs” when we’re working with borrowers to find a lending solution for them. At AgAmerica, we place a big emphasis on collateral, specifically agricultural land—farms, ranches, recreational properties, and timberland are all considered.  

Character is also important as we like to get to know our borrowers, understand who they are, and know how they manage their operations during good times and bad.  

Evaluating a borrower’s capital and capacity position is standard for all lending institutions, but we have a variety of lending products, so if a borrower is weaker in these categories, we can usually find a custom solution that works for them. 

Q: Which of the “Cs” does AgAmerica deem the most important? 

A: Collateral is the most important “C”. AgAmerica is different from traditional lenders as we have a variety of lending products for borrowers at almost every level along the spectrum of the other four Cs. If there is sufficient equity in the real estate and enough offsetting strengths between the other four Cs, we can generally create a solution that can help you accomplish your goals. 

Q: Does a borrower need all five Cs to get their farm loan application approved?  

A: All five Cs are not needed for a loan approval. Agriculture is such a volatile climate, and we understand that borrowers will not be perfect in every category. Other lenders might just look at credit and capacity and turn someone away. At AgAmerica, we try to find solutions and are creative in structuring tailored lending products for our borrowers.   

Q: How can agribusinesses improve the “Cs” of their operations to be more attractive to lenders? 

A: Knowing the ins and outs of your operation and being on top of your financials are important to lenders. Showing strong managerial capabilities and having clean and consistent financial reporting will give lenders more confidence in your borrowing capacity and ensure we have an accurate picture of your operation while evaluating the loan request. Credit history will always be important, but we understand not everyone will have a pristine credit record. For us, it’s important that if there have been previous issues with credit or financial hardships that you are upfront and honest with us, and that there is a clear plan moving forward on how these issues will be mitigated.   

Want to get a pulse on your operational finances but not sure where to start? Our complimentary health check service can point you in the right direction. 

Q: How does character factor into the farm loan application process? 

A: Character entails investigating the background and history of each borrower. If we see someone has a consistent history of paying their creditors, we are more inclined to move forward. However, we are very understanding of the ups and downs of farming and when borrowers have fallen on hard times. We deal in real estate, but we also deal in relationships. Communication going both ways is going to be important. When tough times happen and situations arise, we want to know that borrowers are going to be proactive, open with us, and focused on finding a solution. Good character will come through no matter the situation. 

Partner with a Lender Who Understands Ag

We work with farmers every day. We know that sometimes, your record gets blemished by factors outside of your control. We know how important the farmer’s role is in feeding our nation, and we’re committed to finding ways to help.  

Even if you know you’re lacking in one of the five Cs, don’t let that discourage you from applying for a farm loan. With our multitude of products, we can help you overcome hardships and get the financing you need to get back on your feet. 

Contact us today to apply for a farm loan. 

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