Unit 3 Agribusiness Planning and Analysis Lesson AP5 Objectives Lesson Objective After completing the lesson on obtaining financing for an agribusiness students will demonstrate their ability to apply the concept in realworld situations by obtaining a minimum score of 80 on an Obtaining F ID: 782199
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Obtaining Financing for an Agribusiness
Unit 3: Agribusiness Planning and AnalysisLesson: AP5
Slide2Objectives
Lesson Objective:After completing the lesson on obtaining financing for an agribusiness, students will demonstrate their ability to apply the concept in real-world situations by obtaining a minimum score of 80% on an Obtaining Financing for an Agribusiness Interview.
Enabling Objectives:
Define three aspects of
business financing, identify and describe three sources of business financing, and illustrate two key items a business should provide to secure a loan. Describe the 5 C’s of Credit, identify how a FICO score is calculated, and compare and contrast the four kinds of credit.
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Slide3Key Terms
Business FinancingCapacityCapital
Collateral
Character
ConditionsFICO ScoreInstallmentRevolvingSecuredUnsecured3
Slide4Financing – What Is IT?
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Slide5Business Financing
Economic activity that helps businesses, organizations and production agriculture secure cash for short-term operating needs or long-term investment decisions
Good financial management involves borrowing only the appropriate amount of money needed
Involves shopping around to get the best interest rate possible
Young entrepreneurs wanting to start a business requiring large inventories or large capital investments may face challenges in obtaining a loan, so it is recommended to start smallOnce a financial institution can confirm a history of good business management, they are more likely to lend a business moneyEven if financing is not required to start a business, establishing a line of credit is important when running a business A good credit history helps make it possible to obtain financing, if and when it is needed
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Slide6Sources of Business Financing
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Slide7SOURCE
TYPE OF LOAN
LOAN CHARACTERISTICS
Farm Credit System
Short, intermediate, and long-term loans
Loans for
land, equipment, inventory, business assets, and operating loans for production
agriculture and agribusinesses
Commercial Banks
Short, intermediate, and long-term loans
Loan money for almost anything – real estate, inventory,
capital
assets, etc. Payment schedule requires a single payment or periodic payments of interest and principle
Savings and Loans
Long-term loans
Real estate, housing, etc.
Government Agency:
Farm Service Agency
Provides direct and government-guaranteed
farm loans to persons engaged in agricultural production who will be owner(s) or operators of an agricultural production operation or facility when the loan is closedMakes loans for farm ownership, soil and water conservation improvements, operating expenses, and emergency purposesGovernment Agency: Small Business AdministrationShort, intermediate, and long-term loansPrimarily guarantees loans made by private lenders to entrepreneurs and small businessesInsurance CompaniesShort, intermediate, and long-term loansAllow individuals to borrow against the cash surrender value of their life insurance policy to make purchaseVenture CapitalMoney that can be invested in the ownership of a businessMay involve selling stock on the open market to investors or taking on partnersDealers/SuppliersShort, intermediate, and long-term loansLoan almost exclusively on the product dealer is sellingCars, tractors, feed, fertilizer, greenhouse, etc.IndividualsShort, intermediate, and long-term loansLoaned primarily for the sale of real estate with owner financing and personal loans to relations and friends
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Slide8Securing A Loan
Current and historical financial statements; historical tax returns or Profit and Loss statements – typically 3-5
years; Depending
on size and complexity, accountant prepared statements for larger accounts may be necessary
Individual or business’s credit historyHistory of established business – Income and expensesHistory of individual(s) starting a business – Experience and trainingBusiness and Capital plansProposed collateral to secure the business loan
Cash Flow of the business
Sum of the Cash Flow from all activities including operating, investing and financing activities
Marketing plan with market position statements
Business Resume
Business records to support past production, scope, inventory turns, account management
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Slide95 C’s of Credit
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Slide10Lenders Also Evaluate…
Capacity of Management to manage risk, debt levels, expansions, and human relations issues
Cash flow leverage
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Slide11FICO Score
A credit score lender’s use to determine applicant’s credit risk and whether or not to extend a loan.
FICO is acronym for Fair Isaac Corporation
Creators of
FICO scoreLooks at 5 areas Payment historyCurrent indebtednessTypes of credit usedLength of credit historyNew creditRating agenciesEquifax, Transunion and ExperianScores range between 300 and 850
Score rating
ranges
Above
700 indicates very good credit
history
680
– 699 indicates a good
source
640
– 679 average
score
620
– 639 below
average
580 – 619 low score11
Slide12Credit History
A record of an individual’s or company’s past borrowing and repayment behaviorWill list personal information, credit lines, currently in individual’s name, risk factors, late payments, and public records filed
Used by insurance
companies
, rental agencies, utility companies and others as an indicator of future performanceTypically rate charges based on FICO scores
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Slide13Kinds and Sources of Credit
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Slide14Conclusion
Money is required in order to start and run a business. This money is generally obtained through loans from a person or financial institution. Different sources of financing may be used, and different types of loans may be obtained.
However, in order to receive this financing, individuals and businesses must supply the lending institution with the necessary documents to measure credit score and the individual’s ability to repay the loan.
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Slide15Review
Describe business financing
Identify and describe the 8 sources of
business financing
What must a business provide to secure a loan?Identify and describe the 5 C’s of CreditWhat is a FICO Score?How is it calculated?What is credit history?Describe the kinds and sources of credit15
Slide16Exit Cards
What did you learn today about obtaining financing for a business?What questions do you still have about obtaining financing for a business?
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