What are banks looking at when you apply for loans?

[farmaholic]

Disclaimer: not everyone has had production problems either.

[hobbyfrmr]

They do want you to list every asset possible, including wife's income tax/job. I went with 20% down and they take the mortgaged property as security. Then, there is the added bonus, where they "allow" interest only payment 9 times in 25 years.
There are huge war chests on farms after the last 4 years. Money is spilling out of (some) farmers bank accounts like it was 25 years ago. Land is selling for a minimum of $2500.00/ acre and going up. If a person started farming 4-5 years ago and had decent yeilds, they have only ever had to manage profits and income tax problems. There has been a lot of sweet profits for farmers in the recent past, hopefully this is just a correction in grain prices, or the market taking a "breather" from the last couple years' volatility. Only grain farmers like high grain prices, the higher price to farmer means less profits for everyone else up the chain. That can't last for very long.

[mbdog]

they look at both no doubt. And what a person thinks his equity is worth is not what the bank views it at. I ask about/and try and understand the different ratios they calculate/use to determine credit worthiness.
The skyrocketing interest rate scenario of the past would cripple not only the farm but the broader economy. Don't think this is in the cards... but debt associated with asset bubbles like steel and some land is something I've worried about for some time. You can bet, banks with their data and forecasters, and who have liens on your assets are factoring in debt to equity greater than you think, and stricter credit will be an issue going forward.
my 2 cents.

[mbdog]

Also my 2 cents....I hope this "downturn" in the energy/ag sector is fully designed to ripple thru the broader economy, not just these sectors who repeatedly seem to take one for the team, while urban growth/expansion seems oblivious to this fact. Perhaps it works on the "cultural" change required. Sorry for getting political on this thread, Charlie, but its linked to your question. Another 6 months-year of losses, another round of auction sales could have a tremendous effect on borrowing/s.

[jamesb]

Have a business plan. Back in the 80's when thing went down most farmers had no business plan, didn't do the COP exercises, and mostly planted wheat hoping the CWB would pay them a good price. Farmers today are far better managers to provide better planning to the banks. Just like the sub prime mortgage deal in the US a few years ago people were given loans that they had no business getting. Banks in the 1980's were loaning money to people doing no business planning. I do not believe that will happen today like it did then.

[hobbyfrmr]

Jamesb, I agree. Well said.

Debt/asset ratio
Debt/equity ratio
Debt/service ratio
Equifax credit rating.

[JSelte]

CharlieP I can tell you first hand as I work for a credit union. we look at various ratios including current ratio, debt to equity, debt service ratio, and loan to value. I can tell you that we are one of the more conservative lenders for agriculture but that does not mean i cant spin a web of words to mitigate ratios.
I can tell you though that the consumer lending is completely opposite especially when it comes to CMHC mortgages.