The Sixth C

The Sixth C

The Sixth C of Credit

I’m KayDee Gilkey with today’s Northwest Farm and Ranch Report.

Most of us are familiar with a lender’s Five C’s of Credit when they are making credit decisions for a customer. Those five C’s are: Character, Capacity, Capital, Conditions and Collateral. Each being relatively self-explanatory.

However, there is a sixth lesser known C as well. Dr. Dave Kohl, Globetrotting Emeritus Ag Econ professor from Virginia Tech, shares that sixth C is very critical in lender’s credit decisions.

Dr. Kohl: “Often times when a lender analyzes a producer for credit they’ll look at cash flow, collateral and character but it is the sixth C; the sixth C is the cranium.”

He says high performing ag producers are actively using their brain: they have a business and marketing plan written down. They know their cost of production, have adequate working capital and as well as liquidity. Have both modest living expenses as well as an conservative level of debt.

He continues further describing how a producer demonstrates using their cranium.

Dr. Kohl: “Does that agricultural producer, farmer or rancher have the ability to strategize, but then do they have the ability to execute and follow through. And do they have the ability to take a punch -- an economic punch -- and come back.”
 

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