The 5 Cs of Credit for Young and Beginning Producers

Funding the startup of a new agriculture operation can be a tall task for any young or beginning producer. Remember the “5 Cs of credit” – a checklist of factors for young producers to consider when working to start and secure funding for a new agriculture business venture.

1. CHARACTER

   In the absence of a long financial history with a lender, a young or beginning producer will likely need to demonstrate a strength of character in building a financial relationship. Honesty and integrity may be cliché, but in this context, they are important in securing financing. A lender needs to have confidence the producer will act with honesty throughout the term of financing.

2. CAPITAL

   While many lenders put a lot of stock in a young or beginning producer’s character in entering a financial relationship, capital is typically at the other end of the priority spectrum. In most cases, a young or beginning producer simply may not have the assets or access to capital compared to a more established producer. Character becomes so much more of a critical piece in the absence of startup capital.

3. CAPACITY

   This refers to a producer’s track record of working and managing his or her business prior to seeking financing to start a new agriculture venture. A good example is a young producer who can show proof he or she has worked for others on a smaller scale, has made payments on existing assets, and can demonstrate a thoughtful plan and financial commitment to his or her goals.

4. COLLATERAL

   Like capital, collateral is often in short supply for young or beginning producers. Typically, leasing or renting property is a good way to build a footprint in the farm finance sector. Not only is that a good way to build a business model, it’s also a better approach for a young producer whose plans and aspirations may not yet be chiseled in stone. Much like capital, a young or beginning producer likely won’t have the collateral of a more established producer, making it important to demonstrate a commitment to building a positive repayment history as his or her relationship with a lender evolves.

5. CONDITIONS

   If starting an operation from square-one, a young or beginning producer may require different financing conditions to account for startup costs and a lack of initial production. Financing that pays interest only for the first year, or delays payments altogether, are options that can help a young producer get a crop in the ground that may not begin producing until year two, for example. Being able to demonstrate that he or she will start making more substantial loan payments once production is underway is another way to instill confidence in a lender.

Though these “5 Cs” are important for young or beginning producers to consider when seeking financing, it’s just as important to be open, willing to communicate and to learn and embrace new opportunities. A young producer’s future success is dependent upon his or her willingness to listen to the counsel of a financial officer.

At Farm Credit East, we want to see the passion and drive that demonstrates they’re in this for the long haul.

If you’re interested in starting a new agriculture business, learn more about Farm Credit East’s programs for young and beginning producers here.

Ready to get started? Farm Credit East is committed to agriculture, commercial fishing and forest products, and ready to help with your financing needs.

Contact a local office to be connected with a loan officer who can help you get started today! 

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