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NEW YORK, N.Y. - For
farmers, the ever-present
problem of securing credit
needs is particularly
pressing this year As
Washington attempts to
dampen inflation through
monetary policy, the
availability of funds is
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Industrial finance companies
may provide some farm loans
tightening across the
country.
What does this mean 10
farmers? Simply that their
usual sources of credit may
be pulling m many cases.
Their ability or willingness
to lend may not be what it
was in prior years
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through Aprili.
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CONCRETE
For many growers, this
has meant sharpening their
pencils and sitting down to
some careful financial
planning, looking at all the
options that are open to
them.
One such option; adding
an industrial sales finance
company -- often also
referred to as a commercial
finance company - to their
normal sources of credit for
financing and leasmg of new
equipment
How does an industrial
sales finance company differ
from other lenders? What
does it look for before it
decides to provide equip
ment financing for a far
mer? What should you look
for in such a finance com
pany? Peter McSherry,
National Marketing
Manager - Agriculture, at
C.I.T. Corporation, a leading
nationwide industrial credit
concern, provides the an
swers.
First, an industrial finance
company is in business to
finance and lease equipment
and to do so profitably,
according to McSherry. One
chief characteristic of a
commercial finance com
pany is that it is a secured
lender According to Mc-
Sherry, this means that it
will provide funds for
acquiring new farm
machinery based, in great
part, on the fact that it has
reliable collateral.
While all f mancmg sources
naturally take a prudent
approach to credit, each
vanes somewhat m the
emphasis it places on the
different credit factors. For
example, one financing
source might look un-
Chambersburg, Pa. 17201
Phone 717-264-9588
favorably on a credit
request because it feels the
farmer is carrying about as
much debt as he can handle
at the time. Or, it may
perceive his working capital
- the funds he uses to buy
supplies and pay for other
immediate needs - as bemg
light or inadequate as the
planting season approaches.
Then too, a spell of bad
weather m the previous year
may have lowered crop
yields and hence, profits,
and this may be a deterrent.
Sales finance companies
on the other hand, are
primarily interested in in
termediate-term loans
which average from three to
ten years. Consequently,
they tend to look beyond any
temporary setbacks the
farmer has had and, instead,
analyze his longer-term
prospects, McSherry ex
plains.
Most important, however,
is the fact that any risk in the
transaction will be
minimized due to the
security afforded by the
equipment, the value of
which the company has
carefully determined. This
security can be responsible
for a “yes” rather than a
“ no” on a loan request.
Where do commercial
finance companies get the
funds they lends to farmers
and other borrowers’ Unlike
banks, which get a major
portion of their funds from
deposits, major industrial
finance companies raise
their money primarily by
selling commercial paper, or
by selling notes to the public,
as well as by borrowing or
private placements, Mc-
Sherry explains.
R. R. 2
Lancaster Farming, Saturday, March 29,1980-C39
Of course, above and
beyond the value of the
collateral, a funding source
will also want reasonable
assurances that a farmer
will be responsible in
meeting his obligation, and
in this regard it will take a
close look at the “man
factor,” he says. Honesty,
integrity, proven
management ability, and a
demonstrated record of
meeting past credit
obligations are factors that
weigh heavily in the ap
plicant’s favor.
If the farmer is ex
perienced, runs a profitable
1 operation, and has shown
good management ability -
as demonstrated by crop
yields or livestock
production that compares
favorably with county
averages - chances are he is
a candidate for a positive
decision on his application.
The case for his getting the
financing, however, also
depends heavily on the
farmer’s cash flow
The expected cash flow
must be adequate under
normal conditions and
sufficient to meet operating
expenses as well as family
living expenses and prior
loan obligations.
But, being profitable
depends on many factors
including a good number
that are beyond the farmer’s
abuty to control. Weather
and prevailing market
prices are the two obvious
ones.
For this reason, a com
mercial lender will also want
to know if the grower has
enough equity in his
operation to sustain a
temporary downturn.
Looking at the farm’s debt
to-worth ratio, for example,
will help give the lender an
insight m this question.
All things being equal,
however, the industrial
financing source will place
important emphasis on the
collateral, For him, this is
the “safety valve” m the
transaction. Not only must it
provide security for the
finance company in the
event of default, but it must
also add appreciably to the
farm’s productivity, and
hence "pay for itself,”
McSherry comments.
Does he understand far-
ming? How much does he
know about the equipment
I’ll be buying’ Is he
represented locally’ These
are all questions a farmers
should ask m evaluating a
prospective credit source.
“A credit decision works
both ways, just as the
finance source evaluates the
farmer, so should the farmer
size up the finance source,”
McSherry suggests.
Much m the same way an
industrial finance company
looks to stability and a good,
consistent record in a farm
operator, the grower is
advised to do the same with
a prospective creditor.
“An important piece of
advice that I would give to a
farmers is to find out
whether he will be dealing
with the same company
right through the full term of
the transaction,” he
stresses. That means being
wary of the possibility that
the financial source will sell
or otherwise transfer the
contract to another company
or individual.
“The problems that can
develop when a financing
commitment is assigned by
the original source can be
substantial,” McSherry
contends.
“Dealing with a well
established company is one
way to avoid that possibility
and assure that your tran
saction will be handled by
the same company you
started off with,” he says.
So, as money availability
becomes a major con
sideration for many far
mers, it is important to
carefully evaluate all the
sources open and use credit
availability wisely. Today,
skills in financial
management are just as
much a tool of modern
farming as fertilizer and
feed.
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