Does Character Still Count?
Remember when a loan was done on a handshake and a smile? With many of your ag loans being quickly credit scored, is good old-fashioned character still being evaluated? The answer is, “it depends.”
For a small consumer type of loan, lenders now attempt to get the decision to the producer as quickly as possible. Your character in this case is being analyzed through your credit bureau score, known as a FICO score.
If you and your spouse have scores above 700, you should have little difficulty securing a loan. The U.S. average score is 677. If the score drops below 600, the red flags start occurring.
For young beginning producers or larger commercial agricultural loans, character takes a different slant. Yes, lenders will evaluate your credit score; however, they will examine other attributes as well.
Will you make your loan payments in good and bad times? People’s character sometimes changes when times are tough and the operation is losing money. Some avoid the problem while others step forward, communicate and attempt to find a solution.
Overall, when lenders examine character, it is the intangible factors that matter, like daily production habits, the people you associate with, maintenance of equipment, livestock and land resources and being environmentally sensitive. Yes, character still counts, particularly in adverse situations.
A Note On Character
One of the Farm Credit University online trainees made a statement that I agree with: Credit scoring will be a lag indicator of decreased earnings, cash flow and profit problems more than the traditional old school analysis. However, if a customer is profitable and lives within their means, they will make it work.
The Road Warrior of Agriculture
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Editors' 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.
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