Loan Criteria Given At Bank Seminar
BLUE BALL (Lancaster
Co.) —Sometimes when a bank
says ‘no,’ it may be the best
answer,” said Alan Strock, Exten
sion Service. “It may just keep a
young person out of debt he could
not afford.”
Strock, along with Lewis Gable,
Blue Ball National Bank president,
and Don Robinson, adult education
instructor, served on a panel at the
eighth annual ag seminar held
Wednesday at the fire hall. Ques
tions covered the subject of why a
farm loan may be approved or
rejected.
‘The key question to answer
when you approve a loan is. ‘Can it
be paid back-does it make
sense?’” Gable said. “The four C‘s
of credit includes character, credit,
capacity and collateral.”
Does the customer have the mor
al desire to pay back the loan? If he
does, that’s character.
Credit needs to be established
over the years.
Capacity is cash flow generated,
not only to pay back the loan, but
also to keep the operation going
and keep feeding the family.
Collateral is that something you
have as a secondary source of
repayment if all else fails. With
new regulations, banks cannot
depend as much on collateral when
making a loan as they were able to
do in earlier years.
To obtain a loan, you need
records. And Strock contended that
you need records to be successful.
“The most successful farmers I
know keep their own records,”
Strock said. “They know where
their cash is coming from and what
the feed bill is each month. You
must document your past succes
ses and you must prove it to the
banker.”
Tax returns, balance sheets, net
worth and cash flow statements are
all able to prove your net worth.
You also need to prove from where
the money. Was it profit from the
operation or money from a sale or
source outside the cash generating
capacity of the farming operation?
If you are to make future projec
tions or decide if you can afford the
equipment or expansion, you need
to know the cost of production.
Gable said the bank needs to know
the bottom line, to satisfy the bank
USSINGE. .'5
.LnUTY STOVES
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David O. Fink
RD 1 Box 429-F
Germansville, PA 18053
215-767-1408
directors and shareholders. In
addition, with all the news of fai
lures, bank regulators have bec
vome increasingly tough.
“We can’t just say Amos is a
great guy and he always pays his
interest,’’ Gable said. “That’s not
good enough today. We must have
a good financial statement, a true
balance sheet.
Gable also said that to co-sign
for a loan is serious business, “If
you co-sign, you have the responsi
bility to pay if the signer doens’t
pay the loan,” Gable said. “It needs
to be money you can afford to
IXOVI
if necessary.”
Strode urged farmers to put their
family loans in writing. ‘‘Private
debt is never for sure,” Strode said.
“If there is a death, you may need
to pay bade the loan at the worst
time. In addition, you need to
charge lawful interest, or the IRS
will make you pay taxes as though
you did receive the interest”
One of the new laws that makes
bankers cautious deals with envir
onmental issues. If an enviromen
tal clean-up problem occurs and
the farmer walks away and the
bank assumes the mortgage, the
bank becomes responsible for the
costs that may be imposed. This
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Lancaster Farming, Saturday, February 9, 1991-A27
for the bank.
As for Blue Ball National’s
financial condition, Gable said the
local bank keeps its money in the
community and does not need to go
to the international markets where
the problems have occurred. “For
tunately, Blue Ball National Bank
is a very solid bank,” Gable said.
Robinson served as moderator
for the panel. Other speakers
included Norman Hahn, board
chairman, Nevin Greiner, conser
vationist. Jay Irwin, county agent,
H. Lewis Moore, Penn State and
Melvin Pankuck, president.
Lunch was served to 150 farm
ers and wives.
PH: 717-299-2571