Farm Credit Canada

Farm Credit Canada

December 28, 2012 04:30 ET

Borrowers make five common errors when applying for a loan, says FCC

REGINA, SASKATCHEWAN--(Marketwire - Dec. 28, 2012) - On the eve of a new year, Farm Credit Canada (FCC) suggests that farmers and agribusiness owners can improve the likelihood of a successful loan application by presenting a solid business plan with realistic projections.

"When a financial institution declines a loan application, it doesn't necessarily mean that the project itself isn't worthy," says FCC Chief Operating Officer Rémi Lemoine. "It sometimes has more to do with how entrepreneurs build their business case and their risk mitigation plan. Applicants should remember that their lender can usually make suggestions that will improve eligibility at a later time."

FCC has identified five common errors that potential borrowers make:

  1. Non-existent or incomplete business plan, which is the key element of all business loan requests.
  2. An overly optimistic budget forecast.
  3. Inadequate allowance for cost overruns for projects.
  4. Analysis of the market that lacks solid data.
  5. Limited consultation with others such as an accountant, lawyer or other business owners.

"Success in getting a business loan is all about preparation," says Lemoine. "Documents such as a business plan, cash flow projections, financial statements, and a good credit rating report are great assets. They can help to persuade a lender that a loan is necessary for growing the business and that the plan is a good risk-return investment."

A solid business plan identifies opportunities and challenges. It enables a producer or agribusiness to take action and monitor progress. Applicants should surround themselves with advisors and mentors who can challenge and validate their business plan prior to the loan application. FCC offers a sample business plan template online at www.fcc.ca/businessplan.

"Mentors will tell you if your budget estimates are too high and that may cause you to re-examine your plan. A good entrepreneur can plan for the unexpected and should be confident about the numbers he or she puts on the table," says Lemoine.

"Farmers and agribusiness owners are always busy, but they need to make time to reflect," says Lemoine. "Planning is key to business success. Individual business success contributes to a healthier industry and a stronger Canadian economy. One in eight jobs in Canada is in the agriculture and agri-food system."

FCC loan applications are analyzed using the following "5Cs" criteria:

  1. Character: training, knowledge, experience, financial skills, credit history, integrity.
  2. Capacity: past and projected financial performance, outside income, working capital, quality of the current assets.
  3. Commitment: the level of capital the borrower is investing and has access to.
  4. Collateral: security available and offered, valuation.
  5. Conditions: legislation, market, economy, environment.

As a responsible lender, FCC provides management training to producers by offering seminars, videos, podcasts and other learning opportunities free of charge. More information is available at www.fcc.ca/learning.

FCC is socially and environmentally responsible. Corporate social responsibility activities are focused in five areas: agriculture and food, customers, community, employees and the environment. Continuous education and learning is one way FCC supports the development of a sustainable, competitive and innovative Canadian agriculture industry.

As Canada's leading agriculture lender, FCC is advancing the business of agriculture. With a healthy portfolio of more than $24 billion and 19 consecutive years of portfolio growth, FCC is strong and stable - committed to serving the industry through all cycles. FCC provides financing, insurance, software, learning programs and other business services to producers, agribusinesses and agri-food operations. FCC employees are passionate about agriculture and committed to the success of customers and the industry. For more information, visit www.fcc.ca. Follow FCC on Twitter @FCCagriculture.

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