Idaho Women in Agriculture Conference

Katie Dyer Northwest Farm Credit Services

Who is Northwest FCS?

 Part of the Farm Credit System  A farmer-owned lending cooperative  Serving Washington, Oregon, Idaho, Montana & Alaska  With 600 employees & 47 offices  Providing over $10 billion to 13,000 farmers, ranchers, agribusinesses, aquatic harvesters, timber producers, & rural home owners  Financing 32% of the value of farm production in Washington, Oregon, Idaho, and Montana  The leading crop insurance provider in the Northwest

Northwest FCS Locations

NWFCS Promise and Values

Our Promise

Northwest Farm Credit Services is your trusted source for financial solutions. No other lender knows agriculture better, or is more committed to the future of Rural America

Our Values

Relationships Integrity Commitment Knowledge

What makes NWFCS unique?

     Our focus on agriculture, food and fiber Trusted advisor relationship with our customer Even-handedness through industry cycles Cooperative structure (including local advisory committee members) Farm Credit System membership and strategic partnerships

Financing Programs



Loan Programs

    Real Estate purchase Operating expenses Livestock and equipment purchases Refinancing existing debt 

Other Products

     AgVision Program  Loan Program for Young and Beginning Producers Appraisal Services Country Home Loans Crop Insurance Life and Disability Insurance

AgVision Program

 A program designed to meet the needs of customers with at least one of the following characteristics: 

Young

(35 years of age or younger) 

Beginning

(10 years or less agricultural experience) 

Small

(Producer with annual gross farm production of less than $250,000) 

Recognized minority

(African American, Native American, Alaskan Native, Hispanic, Asian, and Pacific Islanders)  Eligible Service Members



Northwest FCS: AgVision

Who Qualifies under the AgVision program

 Aspire to be or is a full time Ag producer  Has a acceptable credit history  And again, meets at least one of the following characteristics.  Young, Beginning, Small, or Minority Producer

AgVision Program Benefits

 Same financing options as other Northwest FCS customers  Potential fee waivers  Appraisal fees  Loan origination fees  Competitive interest rate  Educational / Technology benefits   $500 reimbursement for technology purchases $500 travel reimbursement to educational commodity workshops/conferences  $500 credit toward NWFCS workshops

AgVision Program Benefits

 Leadership opportunities through our local advisor program  Education Opportunities   Annual AgVision Producer Conference Workshops geared toward enhancing financial analyses  Access to Knowledge Center which provides market snapshots, industry perspectives, and peer financial benchmarks

How are loan decisions made?

The 5 Cs of Credit

    

C

haracter

C

apital

C

apacity

C

ollateral

C

onditions * Most lenders use this method or a similar method to analyze commercial loan applications

Character

 Your experience in the operation  Operating/Production  Financial  Marketing  Have a business plan in place  Have a good credit score



Character – Business Plan

General

 Name   Date Production year 

Financial

    Current year

income and expense records

Current

balance sheet

, projected

balance sheets

Past

three year’s tax return

Complete

cash flow budget



Farm Plan

  Land-base -- list each tract, total acres, location, owned or leased (include terms). Number of acres and crops to be grown on each tract, yield, estimated price per unit    Livestock -- list total number by classification (cows, bulls, etc.) List number of head to be produced, pounds per head for sale, and estimated price per pound. Conservation practices Marketing plan including when and how products will be marketed

Character – Business Plan



Risk Philosophy

 Insurance – do you have Life or Health insurance.  Insurance - Crop - crop hail, multi-peril, amount of coverage, cost, agent and company. 

Expansion Plans

  Plans to purchase real estate. Plans to rent additional real estate.    Proposed source of capital. Proposed repayment plans. Equipment purchases -- date, item, cost, and type of financing. 

Personal

 Experience  Goals -- list short-term and long-term

Character

 Credit Report  What is a credit score and why is it important  Predicts financial risk over time  Credit scoring is used by lenders, insurers, and others to evaluate your credit behavior  Credit Score above 650  Have no late payments  Have minimum credit card balances  Have no outstanding collections or liens  Review your credit report at least once a year www.annualcreditreport.com

Credit Bureau Reports

  National average credit score is currently 677 Over 60% of FICO scores exceed the magic number of 700 – WHY MAGIC     Above 700 – less than 5% delinquency rate Above 800 – less than 1% delinquency rate Under 600 – 51% delinquency rate Under 550 – 71% delinquency rate

Capital

  Financial Statement:

Balance Sheet

 A snapshot in time Your financial position – what you OWN (assets) and what you OWE (liabilities)  Difference between is called

Net Worth

 Financial ratio lender looks at is debt to asset (leverage)  Generally a lender will want to see this ratio below 65%

Capacity

 Financial Statement:

Income Statement

  Can you Repay the loan?

It’s one of the most important factors for any operation 

Revenue less Expenses = net income

 Positive difference indicates a profit  Negative difference indicates a loss  Generally a lender will want to see a 10% margin Note: Cash accounting can be misleading – consider using Accrual accounting – making necessary adjustments to reflect beginning and ending inventories, accounts payable, etc.

Collateral

 The security that backs up the loan  Examples: farm ground, farm equipment, crop inventories, livestock, etc.  Will try to line up collateral with type of loan being made    Operating loan – crops Equipment loan – machinery & equipment Real Estate loan – farm ground being purchased  Generally, a lender would like to be below 80%  Loan Amount/Collateral Value

Conditions

 Terms of the loan  

Example:

Length of loan, fixed vs. variable rates, FSA guarantee, crop insurance, life insurance requirement, etc. If there is weakness in the other C’s, we can add conditions to help mitigate the risk to the lender and customer

Record Keeping

Are death and taxes the only reasons for keeping financial records?

Why Keep Good Farm Records

 Do you want to know where your business is going?

 Ability to analyze and make adjustments if needed   To evaluate you need to know where you began and you need records to do this Records validate your analysis and decisions  Do you want the ability to get a loan with a lender?

 5 Cs of credit  Do you want accurate tax documents?

 Poor records often lead to tax returns that result in either underpayment or overpayment of taxes

Choose a Record System

 Numerous kinds of Farm Record Keeping Systems  Paper Records    Excel Quicken Quick Books  Research the different options and select the right fit for you  Determine your method before you get too busy

Record Keeping Options

 Keep it simple – appropriate level of detail 1.

2.

3.

Hand-written records using a ledger book and folders    Keep all sales receipts in one folder and expenses in another Maintain a capital asset depreciation log Keep notebooks for farm yield or other data important to the year Excel Spreadsheets  In between paper and record keeping system Inexpensive bookkeeping software  Quick Books  Quicken  A more complex operation -- a more detailed system

Record Keeping Software

 Should include the following      Business-checking account that keeps transactions separate Income and expense ledger by month Inventory ledger for physical counting and value the business Depreciation schedule for any purchased equipment that is eligible for depreciation (see IRS rules) Balance sheet, Income statement, Cash flow statement

Record Keeping Methods

 Cash Method of Accounting  Business records all income earned and deducts all expenses in the year in which they are paid.

 Accrual Method of Accounting   Reports income earned and expenses deducted in the year in which they occur, although it may not be the same year in which the income is received or the expenses paid. For business that offer credit or maintain inventories, the accrual method offers a more accurate picture of the net profitability of the business.

Production and Financial Records

 Consider maintaining two sets of farm records  Production levels  Keeps track of the operation’s inputs and outputs: crop yields, plan populations, livestock born and lost, etc.

  Can assess where income was produced Strength and weaknesses of the farm operation  Financial Records   Track operating expenses, equipment, feed and seed purchases, wages and salaries, interest and loan payments, etc.

Trends in Net Worth

Receipts and Expenses - Monthly

 Record all receipts, including payments from crop or livestock sales, custom hire work, etc.

 Record all expenses, including cost of feed, chemicals, seeds, fuel, etc.

 Include date, customer full name and address, description of the transaction, method of payment

Keeping and Using Inventories

 Progress can not be determined from year to year without an annual inventory.

 Inventory almost everything: money, livestock, crops, supplies, property, etc.

Analyze Your Business

 Helps you to understand:  Where the income was produced     Strengths and/or weaknesses of the farm business Returns for labor and management Trends in net worth The operation’s production efficiency

Financial Statements

 Balance Sheet  Income Statement  Cash Flow Statement  Understand your flow of income and expenses during the year to determine your ability to pay bills

Summary

 Present day farm Operations are becoming more and more business oriented  Being a good producer is no longer good enough  Becoming a successful farmer today is being a good producer AND a good financial manager  The first step is to keep good, accurate records and establish a sound record-keeping system  Validation requires a written plan, something to follow and something to evaluate