Low interest rates help borrowers
By LACEY JARRELL
Today’s agricultural borrowers can enjoy lower interest rates than those available before and during the recession, according to Northwest Farm Credit Services Regional Vice President Bob Boyle.
“This is the third year of record profitability. It’s a great time to be a farmer,” he said.
Northwest Farm Credit, which began providing services nearly 100 years ago, provides loans and financial programs to all aspects of agriculture: purchases, homes, lines of credit and capital. Farm Credit has about 25,000 loan relationships with farmers and ranchers in five states.
Boyle declined to reveal current interest rates are, but he said the prime rate driving most seasonal operating loans is 3.25 percent. Most lines of credit will be made to match the length of the time it is needed.
“It’s not uncommon to see operating lines of credit in the one- to three-year period,” Boyle said.
Interest rates for operating lines of credit, equipment and real estate loans are the lowest the market has seen, although longer-term 20- and 30-year loans are experiencing some upward pressure, he said.
“For those seeking rates on equipment or real estate, those rates are at historical lows,” he said. “Some of these folks have never seen rates this low.”
According to Boyle, most creditors make loan decisions based on five key variables, known as the “5 Cs:”
• Capacity to repay a loan.
• Collateral to support the risk of a loan.
• Character that indicates commitment to repay the loan.
• Capital that reveals a borrower’s financial position to undertake a loan.
• Conditions in the marketplace and industry that promote financial expansion.
“Each institution has its own order of importance, but character, cash flow and collateral probably carry more weight now than they have in the past,” Tim Corzine, vice president of commercial relationship management at Oregon Pacific Bank, said.
Borrowers should have a good understanding of their financial position and capacity to repay loans before applying for credit, Boyle said. Creditors always look at earning ability and the means to generate enough money to repay a loan through employment or farm production.
For those with limited cash flow or collateral seeking loans, guaranteed loans backed by the USDA Farm Service Agency may be available. In situations where a bank might typically not lend funds, the FSA, which may guarantee up to 90 percent of a loan, will review a borrower’s credentials to weigh risks and determine if a reasonable level of confidence exists.
“Sometimes we might go a little longer term than we would normally, or if their credit rate is a little weak, we might decide to go ahead with the (Farm Service) guarantee backing the loan,” said Brian Castleman, vice president, senior commercial relationship manager at Oregon Pacific Bank.
The length of the application process depends on the size and complexity of the loan a borrower seeks, but Boyle suggested preparing an income statement based on tax returns for the previous three years and a cash flow budget outlining income and expenses projected during the 12 months following approval.