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Summary of Roundtable:
Join leading financial coaches discuss how to build and pressure test your capital plan ahead of key land deals this year, so you are prepared for any deal that comes across your desk.
Drawing from real client examples, our experts will talk through how farmers can: – Establish tactical growth goals – Determine what deals their balance sheet can support while protecting their cash position – Qualify land deals and know when to chase them
I look forward to joining you there!
SW Financial Literacy
How To Get Financed Part 5: Conditions
Getting approved for financing isn’t random, the 5 C’s of Credit are fairly well know and used universally:
Character
Capacity
Capital
Collateral
Conditions
Each lending institution looks at these a little different and may prioritize one over another. To get approved for financing, you need to chin the bar on most of the C’s. To get the best terms out of your financing, you want to accel at all 5. The more you know about them, the better you can be prepared.
To read previous articles in this series:
I’ve Never Heard of Conditions
Conditions are the least talked about of the 5 C’s of Credit, but have a large impact on you before and after the loan is in place.
Conditions can be placed on a loan by the lender to help ensure payments are made correctly and on time, keeping everyone happy. Conditions can impact you for the life of the loan. There are rules and regulations around them, how they are enforced, and even how they are discussed with the applicant.
I’m not going to go into those details (talk to an attorney), but just give a brief overview of why a few common conditions might be placed on a loan. Some of these impact the loan terms you are approved for, some need completed prior to loan closing, and others may need to be completed after loan closing to stay in compliance.
Basic Conditions
These are the very basics around conditions, always talk with your lender if you have further questions around these:
Co-signer – An additional co-signer may be requested if there is not enough strength with the current applicants to approve the loan request.
Different payment structure – If your primary income is W-2, it may be a condition that your loan payments take place monthly (or more frequently than annual) to better align with your income.
Additional collateral – If there is an insufficient Loan To Value (LTV) with collateral, it may be requested the loan amount decrease to improve LTV or additional collateral be provided. How to Get Financed Part 4: Collateral – Farm640
Decrease loan amount (larger down payment) – There are situations where the operation’s Debt Coverage Ratio does not support the request as it stands, but a smaller loan amount can be supported. If there is sufficient Working Capital in the operation, it may be utilized toward a larger down payment to improve your repayment capacity and get the loan approved at a lower value. How to Get Financed Part 2: Capacity – Farm640
Proof of insurance – Farming is often about risk management. Since you can’t pay back your loan if you don’t raise a crop, you may be required to obtain crop insurance and provide proof of insurance to mitigate risk.
Flood insurance – If your collateral has buildings located in a flood plain, plan on needing this insurance.
Conditional loan approval based on borrower’s ability to obtain additional financing – For joint finance loans (like what the Farm Service Agency offers), your loan approval may be dependent upon you getting approved and closing on the other portion of your finance package.
There are hundreds of conditions around approving loans and obtaining financing at closing. Many (like clean title) are a given. Just know conditions are there to put you in a position where the lender feels confident you will be able to meet the loan obligations and avoid default.
Key Takeaways:
Conditions can take place:
Before your loan is approved, changing the loan terms.
After the loan is approved but before loan closing. These will need to be addressed before you can close.
After loan closing to stay in compliance with the lender.
If you have questions, ask your lender!
Have a great week!
Grant
All views expressed on this site are my own and do not represent the opinions of any entity whatsoever with which I have been, am now, or will be affiliated. Information provided is authentic to the best of my knowledge, and as such, is prone to errors and the absence of key details. The content of this blog is for entertainment and informative purposes and should not be seen as professional advice to finances or any other field.