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Other Agribusiness Lenders

Other Agribusiness Lenders. Chapter 9. Vendor/Trade Credit. A vendor is a merchant or businessperson selling products to businesses and the public. Trade Credit would be financing provided by the vendor. If financing is provided by the seller it is deemed trade credit. Credit Terms.

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Other Agribusiness Lenders

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  1. Other Agribusiness Lenders Chapter 9

  2. Vendor/Trade Credit • A vendor is a merchant or businessperson selling products to businesses and the public. • Trade Credit would be financing provided by the vendor. • If financing is provided by the seller it is deemed trade credit.

  3. Credit Terms • Contractual agreements between the parties as to the timing of payment, any early discount for early payment, and penalties for lay or nonpayment. • Shorthand Terminology is used to state the terms of credit

  4. Credit Terms • 2/10, n30 • This means a 2% discount is paid within 10 days and the net is due in 30 days. • EOM • This means that the vendor is requiring payment by the end of the month.

  5. Credit Terms • Liberal Credit Terms • Large early payment discount • “Get Tough” Credit Policy • May drive away potential or existing customers • The Trend is toward smaller or no early payment discounts.

  6. Life Insurance Financing • Prior to the establishment of the Farm Credit System, life insurance companies were major providers of real-estate financing. • Life Insurers tend to provide larger loan amounts, with the average mortgage outstanding being approximately $730,000 • The number of companies providing this service is declining.

  7. Farm Service Agency • Founded in 1994 following a reorganization of the USDA. • Lending functions were formerly administered by the FmHA (est. 1937) • They Provide both Direct Loans and Guaranteed Loans. • It has a commitment to new and disadvantaged farmers

  8. Farm Service Agency • Direct Loans come in the form of: • Farm Ownership Loans • Farm Operating Loans • Emergency Loans • Guaranteed Loan Program • Farm Ownership Loans • Farm Operating Loans

  9. Federal Agricultural Mortgage Corp. • Farmer Mac founded by the Farm Credit Act of 1971. • Ag Credit Act of 1987 allowed for loan purchase activities.

  10. Private Financing • Normally used for agricultural real estate • Tends to be for: • Family loans • Seller Financing • Broker-arranged mortgages (where underwriting not met)

  11. Private Financing • Seller financing most suitable when the farm property has been paid off by the seller during their tenure. • Advantage of seller financing is that no minimum down payment is required. • High risk development also use private/owner financing

  12. Private Financing • Subordination Clause – This statement in a promissory note requires the seller/lender to allow other institutional lenders to hold a higher-security claim on the property if they provide subsequent financing should there be a default by the developer/borrower. • Private Financing makes up a small portion of total loan transactions.

  13. Private Financing • Land Contract or Contract for Deed – why buyer makes payments and gets deed when fully paid.

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