SPIS Toolbox - Loan assessment: Adjust Repayment Plan to Cash Flow

Loan Assessment: Adjust Repayment Plan to Cash Flow

SPIS, being based on agricultural activities, follows specific liquidity patterns, such as:

• irregularity, seasonality;
• farming-household mix;
• several cash generating activities (agricultural, non-agricultural);
• external shocks (climate, weather, pest, disease, prices).

Determining specific loan features (disbursement pattern, repayment rate, collateral, repayment frequency) should be based on cash flow projections of a particular case.

This means for the loan analysis process:

• in depth understanding of the farm and family economics;
• strong interaction with the potential borrower;
• networking with other sources of information in the sector and region;
• thorough understanding of the market and market trends;
• excellent staff with innovative attitudes.

SPIS goes along with high initial investment sums. These result in:

• long repayment periods (15-20 years);
• a need for high profitability of the SPIS;
• a need for a grace period at the beginning of the repayment plan.

Note: High installments resulting from very short loan repayment periods can create a threatening liquidity shortage – especially in the first years.

Outcome / Product

• Cash flow statement (current, projected);
• Tailor-made disbursement and repayment plan;
• Financial risk analysis/adjustment;
• Summarized risk analysis;
• Tailor-made loan details for decision.

Data Requirements

Collect, compute, prepare:

• total farm liquidity analysis (including household liquidity analysis (current + projected with SPIS));
• borrower’s own capital contribution;
• repayment potential;
• repayment plan;
• loan details.

People / Stakeholders

• Loan officers financing or planning to financeSPIS;
• Producer(s) / potential borrower;
• Management of financial service providers (operational level);
• Public entities promoting or/and subsidizing SPIS;
• Sponsors.

Important Issues

• Specific liquidity patterns need to be identified for every single case.
• Data collection process is challenging due tointermingled family-farm economy.

High initial investment costs should ideally not lead to prohibitive transaction costs (consider bank-external subsidies);

• High initial investment costs should ideally not lead to liquidity shortages of the client due to high or very early installments (be flexible when defining installment plans).