There's a lot to consider in a loan application. Find out what affects that final decision.
FCC lending decisions are based on factors including:
- Prior credit history
- Repayment ability
- Security
An Equifax report is a key indicator of credit history and is used to determine your credit rating. You can get a free hard copy of this report by calling 1-800-465-7166, or access your report (for a fee) at www.equifax.ca
The 5 Cs of credit are key considerations in all primary production loans:
Character - An assessment of both the experience and capacities of the business' management personnel is critical. We consider:
- planning skills and experience
- financial skills
- credit history
- integrity
Capacity (repayment ability) - Capacity addresses the past financial performance of the enterprise, a prime indicator of its future viability and the likelihood of loans being repaid in an orderly manner. We consider:
- past and projected financial performance
- outside (off-farm) income
Commitment - The commitment of the owners of the enterprise is crucial to its success. We consider both financial and non-financial commitment to the business.
Collateral - Collateral provides the secondary source of repayment. To ensure adequate coverage for the loan, we look at:
- available security and its value
- commitment to other lenders
Conditions - To assess the future viability of the enterprise and determine risk, we evaluate:
- legislation that could affect the industry
- market conditions
- current and potential economic impact
- potential environmental impact
For commercial AgValue loans, the 4 Ms of commercial credit are key:
Management
We consider the overall experience of the owners/management:
- succession planning
- employee training and loyalty
- financial management history
- reporting systems
- financial capacity (net worth and financial history)
Markets
Long-term viability of a business depends on:
- market acceptance
- stability of demand
- vulnerability to the competition
- market size
- sales terms (reputation of purchasers, restrictions on cash flow, collection strategy)
Money
This area includes the company's financial position and planning:
- working capital and liquidity position
- other liabilities and contingencies (could include guarantees or pending law suits)
- company's debt/equity position and debt service
- commitment of retained earnings
- earnings history
- shareholders' loan performance
- planned changes and their effect
- the amount and purpose of the loan and its terms
- estimated value of security
Materials/methods
We evaluate all aspects of production and available product:
- inventory
- source of supply
- length of the manufacturing period
- capital invested in works in progress
- nature of costs
- nature of fixed assets
- potential impact of the regulatory environment and environmental regulations
In addition to all these factors, we look at other variables before making a final decision.
