In a previous article I discussed five ways to get denied for credit. Let’s add to the list.
Overvalued Assets
Yes, we all think our land is the best and our machinery and livestock are top of the line. A reasonable assessment of the value of your assets on the balance sheet is a good start in the credit acceptance process. Agrilenders like to see values within a 10-20% zone of tolerance. Exceed this range, and expect to provide justification.
Surprise, Surprise, Surprise!
No, that’s not Gomer Pyle speaking in the old TV show, and it’s not music to your lender’s ears. A quick way to be denied for credit is to leave outstanding debt off your balance sheet. Such items as accounts payable, credit card debt and loans with friends and relatives that are not accounted for can raise the eyebrows of your lender.
Split Lines of Credit
Back in the farm crisis days of the 1980s, a sure sign of credit problems was more than five different sources of credit. In some cases, up to 25 different sources were seen. Split lines of credit are a red flag because some customers use the old principle of robbing Peter to pay Paul. Juggling creditors usually catches up to even the best of them.
Fraud!
When you are short of livestock, show your lender the neighbor’s cows. Send in false income tax records for your lender’s analysis. Provide bogus or multiple social security cards. These are just a few of the fraudulent activities observed in the agrilending field. Hopefully this applies to none of you!
Editor’s note: Dave Kohl, The Corn And Soybean Digest Trends Editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at sullylab@vt.edu.