What are the 7 Ps of credit?

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Farm credit hinges on seven key principles. Loans should fund productive ventures, considering the borrowers character and farms potential output. Staged funding ensures proper use, with timely repayments protecting both lender and borrower. Financial success rests on these elements, ensuring prosperity and responsible lending.

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The 7 Ps of Credit

When it comes to farm credit, there are seven key principles that lenders consider in order to make a decision on whether or not to extend credit. These principles are known as the 7 Ps of credit, and they are:

  1. Purpose – The purpose of the loan is the first thing that a lender will consider. They want to know what the money will be used for, and whether or not it is a productive purpose. For example, a loan to purchase a new tractor would be considered a productive purpose, while a loan to take a vacation would not.
  2. Principal – The principal is the amount of money that is being borrowed. Lenders will consider the principal amount in relation to the borrower’s ability to repay the loan.
  3. Payment – The payment is the amount of money that the borrower will be required to repay each month. Lenders will consider the payment amount in relation to the borrower’s income and expenses.
  4. Period – The period is the length of time that the loan will be outstanding. Lenders will consider the period in relation to the borrower’s ability to repay the loan.
  5. Property – The property is the collateral that the borrower is offering to secure the loan. Lenders will consider the value of the property in relation to the amount of the loan.
  6. Profitability – The profitability of the borrower’s farm operation is a key factor that lenders will consider. Lenders want to know that the borrower has the ability to generate enough income to repay the loan.
  7. Protection – The protection that the lender has in the event of a default is another important factor that lenders will consider. Lenders will typically require the borrower to provide some form of collateral, such as a mortgage on the farm property.

By considering all of these factors, lenders can make a decision on whether or not to extend credit to a borrower. The 7 Ps of credit are a valuable tool for lenders, and they help to ensure that loans are made to borrowers who are able to repay them.

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