Chapter IV. Size and Ability to Meet 

 Conventional Credit Terms 



HAVING developed basic relationships between farm size and capital 

 accumulation potential, we may now examine the ability of these same 

 farms to meet conventional credit terms and to acquire ownership through 

 them. This may be worth while in these respects: (1) individuals trying 

 to obtain the use of and equity in farming capital are faced with these 

 credit terms and (2) lenders may be interested in adjusting their credit 

 terms more closely to fundamental capital accumulation potentials. In the 

 following sections the practical maximum credit terms of the three most 

 prevalent lending institutions are compared with the farms' abilities to pay. 



Ability to Meet Cooperative Farm Credit Terms 



The credit terms in Table 9a are: (1) real estate, Federal Land Bank 

 loans of 50 percent of market value, interest at 4^2 percent, "Springfield 

 plan"^ amortization over a 33-year period with two payments per year; 

 (2) livestock and equipment. Production Credit loans of 50 percent market 

 value, interest at S^/o percent, repayment over a five-year period. Table 9a 

 shows that, with $5.00 milk and depreciables at new price, only the largest 

 one-man and three-man farms could meet the repayment terms. With the 

 same milk price and depreciables at one-half new price, the middle size 

 farms also can approximately make the payments. It should be noted that 

 this is the first year payments which, under the Springfield amortization 

 plan, are the highest of any year. With S5.50 milk, as shown in the lower 

 part of Table 9a, a few more sizes are able to meet the repayment schedules. 



In Table 9b the representative farms' abilities to pay are compared with 

 the Land Bank regular (constant total) amortization payments rather than 

 the Springfield (diminishing total) amortization payments. This reduces 

 the first year's payments somewhat and puts three more of the sizes in a 

 position to approximately meet the payments at the $5.00 price level and 

 one more at the $5.50 price level. Of course it enables the others to do 

 so with more margin than they had before. 



Ability to Meet Bank Terms 



The credit terms applied in Table 10 are: (1) real estate loans equal to 

 70 percent of market value, interest at 5 percent, amortization over a 20- 

 year period with monthly payments; (2) livestock and equipment loans 

 equal to 50 percent of market value, interest at 6 percent, amortization 

 over a five-year period with monthly payments. 



^ The Springfield plan involves a constant principal payment plus interest on the 

 diminishing balance. Hence, the total payment per period declines with time. The 

 lending terms were obtained from the respective lending agencies in late 1956. 



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