Introduction
Many farmers believe that accessing farm credit or financial assistance from lending institutions is a difficult task, as a result, they find it difficult to source farm credit from financial institutions to finance their farm and agribusiness.
They state that the process is too bureaucratic and they lack the criteria for accessing farm credit from banks and other financial sources.
Additionally, many farmers and agribusinesses men lack appropriate knowledge of the criteria for accessing loans from financial institutions.
This is because various credit agencies such as commercial banks, friends, insurance companies, mortgage banks, cooperative societies, and so on have different criteria for granting loans to farmers.
Moreover, it is paramount to understand the specific criteria of each financial agency before seeking or applying for a loan
Read Also: Top 9 Alternative Sources of Funding Higher Institutions in Nigeria That Will Surprise You
Criteria for Accessing Farm Credit From Financial Institution
Some of the criteria for accessing farm credit from financial institutions are
Agro Business or Farm Owner
The nature of the agro-business or farm ownership needs to be determined before granting a loan to an applicant.
Credit agencies must ascertain the status of the properties under consideration before granting loans to farmers. The lender is in the business intending to make a profit from the money that is lent out. In the case of loan default, they will fall back on the property to reclaim their money.
Therefore the proof of ownership, and farm records from farmers and agro-business enterprises are required to tender all the necessary proof of ownership depending on the types of farming that the farmers operate.
Credit agencies have different types of credit designs to suit different categories of farming.
Farmers’ Credit History or Creditworthiness
Farmers’ financial history or creditworthiness are crucial factors that determine the eligibility for accessing farm credit.
Financial agencies will consider the farmers’ or traders’ past financial history or creditworthiness to ascertain their ability to repay loans.
A good credit history will give a higher chance of obtaining a loan from a financial institution.
Good Farm Business Plan
A well-written farm business plan is crucial in accessing farm credit from a financial institution.
lending agencies usually evaluate the goals and objectives statements, ascertain the worth of the business, and plan the income and expenditure of farms or agribusiness before granting eligibility loans.
The manner a business plan is written and presented can help financial agencies assess the loan seekers’ ability to manage or repay the loan.
Collateral Security for Loan
Collateral security is another factor to be considered by credit agencies before granting loans to farmers. It is security because at the point of default intentionally or unintentionally due to business failure, the financial institution can hold on to the collateral security for repayment.
Collateral security for a loan can be a surveyed piece of land, a certificate of ownership (farmland, farm building, farm equipment), vehicles, a farm planning certificate, and other valuable assets. It is one of the most important criteria for accessing farm credit from financial institutes because it is creditworthy.
The worth of the type of collateral security possessed by the farmer determines the amount of credit that can be given to the farmer.
Good Farm Record or Financial Statements
Lending institutions often consider the day-to-day records of income and expenditure of a farm or business before granting farm credits to farmers.
Good farm records or financial statements are necessary for accessing farm credit because they can show the farm or creditworthiness.
Financial institutions may demand several farm records such as balance sheets, cash flow statements, profit and loss accounts, and important financial books. These records determine the farmers’ ability to access loans from financial agencies.
The Farmer’s Reputation in the Farming Industries
The farmers’ reputation in the farming or business industry is also one of the criteria for accessing farm credit.
financial agencies usually establish contact with referees of loan seekers to determine the loan applicants’ honesty, integrity, and reputation before granting loans.
This will help financial institutions determine loan seekers’ or prospective borrowers’ creditworthiness. Lenders may also consider the farmer’s experiences in farming and how famous the farmer is before granting loans.
Farm Legal Requirement
Farming is a business, it must be registered by law, and before one will start a business one must have acquired all the legal backing needed to operate in the business environment.
This is also one of the criteria for accessing farm credit because financial institutions consider how compliant the farmers are with the laws and regulations guiding farming in the environment.
The Reason for Obtaining the Loan
The reason for applying for a loan is another criterion for accessing farm credit, financial agencies will have to assess and know the farmers’ reason for applying for the loan.
This is important because financial agents can offer expert advice for the types of agribusinesses or the best enterprise to invest in for profitability.
Farm credits are in categories, credit agencies will have to review the reason for applying for a loan in connection with the types of farming or business the farmers are operating and once both are related the chances of acquiring a loan are very high.
The Farmers’ Location
The farmers’ location is also a determinant factor for accessing farm credit from a financial institute. This may look very trivial, but it is an essential criterion for granting financial credits to farmers.
Financial institutes will have to determine the farmer’s location to ascertain whether it is accessible before granting loans.
Some lenders have areas of coverage beyond which they cannot grant farmers or agribusinesses access to financial credit. Therefore, the farmers’ location plays a vital role in determining the ability to source for loans.
The Nature of Farm
The nature of the business or the agribusiness that the farmers operate is a criterion for accessing farm credit from a financial institute.
Lending agencies will have to consider the type of farming that the farmers operate before applying for a loan. For example, you cannot be a cassava farmer and apply for a livestock loan. Financial agencies consider the loan option available before granting farmers access to loans.
In conclusion
This article reviews the criteria for accessing farm credit from a financial institution. These requirements listed in this article may vary from countries to another.
However, leading agencies may consider factors such as agro-business or farm owner, farmers’ credit history or creditworthiness, collateral Security for a loan, the farmer’s reputation in the Farming industry, and the reason for obtaining the Loan.