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OBJECTIVES Define capital, credit and loan. Define the types of loans. List the different sources of credit for farmers. Explain the credit evaluation process for farmers. Explain the terms and conditions of loans. Explain the different types of interest rate and calculations. Explain the concept of loan maturity and collateral. Define the debt repayment capacity. List the terms of repayment. 1. CAPITAL, CREDIT AND LOANS Agricultural Capital: Goods used to produce other goods which generate income over extended periods of time e.g. equipment, house & livestock. Farm credit: Resources/part of capital/money used to purchase assets or operate a farm. TYPES OF CREDIT OR CAPITAL Real estate capital or credit: Credit/capital used to purchase farm land, real estate or add improvement to farm property/assets. Working capital or credit: Capital used to purchase productive inputs that are used for more than 1 year including breeding stock, equipment and machinery. Operational capital or credit: Capital used purchase inputs that are consumed in the production process e.g. seeds, fertilizer, etc. PRODUCTIVE VS CONSUMPTION CREDIT Productive Credit: Form of credit used to increase production or income or used to purchase land, livestock, equipment, seed, fertilizer, etc. Consumption Credit: Credit used to purchase consumable items used by the family and does not contribute to business income. E.g. credit for food, clothing, household goods etc. TYPES OF AGRICULTURAL LOANS OR CREDIT Short-term loans Operating loans or credit: Loans for short-term seasonal needs, often for year or less & are to be paid from that years production. E.g. Seed, chemicals, fertilizers, feeder stock. Security is often a lien on products produced. Open account credit or line-of-Credit: With suppliers or banks that specifies the timing of disbursement and payment of loan. Two types: Intermediate Credit or loans (2-7 years) Credit for depreciable assets and capital investment (farm equipments, building, etc) or refinance debts incurred for capital purposes to be repaid over a period of 2-5 years or more. Collateral or security: Crops or real estate. Working capital loans: For longer term assets breeding stock, building renovations. Repayment period: 5-7 years. Security or collateral: Mortgage on personal property financed. Long-term Loans, Real Estate Mortgages or Contract Financing: Loans to acquire, construct, improve land & buildings or to consolidate other loans. Repayment period: Longer than 10 years. Security: Lien on real estate.
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