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Junior and Senior level Ag Bus. | |Colorado Agriscience Curriculum

|Section: |Advanced Agribusiness |

|Unit: |Management of Agricultural Business Records |

|Lesson Title: |Loans and Loan Types |

|Colorado Ag | |

|Education Standards |AGB11/12.03 - The student will be able to formulate and analyze financial records and use the information for evaluation and |

|and Competencies |planning. |

| | |

| |Set up and use a general ledger and chart of accounts. |

| | |

| |Understand loan repayment. |

| | |

| |Understand types of interest. |

| | |

| |Complete a loan application. |

| | |

|Colorado Model |English Standard 1: Students read and understand a variety of materials. |

|Content |English Standard 4: Students apply thinking skills to their reading, writing, speaking, listening, and viewing |

|Standard(s): | |

| |English Standard 5: Students read to locate, select, and make use of relevant information from a variety of media, reference, and |

| |technological sources. |

|Student Learning |Upon completion of this unit the student will be able to |

|Objectives: |1. Identify areas in Agriculture where financing may be needed. |

| |2. Classify loans based on length of financing. |

| |3. List sources of Agricultural loans. |

|Time: |50 minutes |

|Resource(s): |Introduction to Agribusiness, Ricketts and Rawlins |

| |Instructional Material Services , Texas A&M |

|Instructions, Tools,|Italicized words are instructions to the teacher; normal style text is suggested script. |

|Equipment, and | |

|Supplies: | |

|Interest Approach: |Good day class! Today we are going to be working on a Unit titled Loans and Loan Types. How many of you are currently involved in a |

| |loan? Why did you need a loan? Why didn’t you pay cash for what you bought? (very briefly recognize a few students and their |

| |loans) To get started today I am going to divide you into 3 groups. Each group will be given a different loan type and I want you to|

| |give me as much information about that loan type as possible. You should include in your list things like what you would purchase |

| |with that type of loan, How long your group’s loan would be, and where your group could get your type of loan. Basically list as |

| |much or as little about your loan type as you can in 5 minutes. Give one group short term, intermediate term and another long term |

| |loans. Allow groups 5 minutes to work. When 5 minutes is up have students from each group briefly discuss their groups list. |

| |When done transition into objective #1 |

| |Slide 1 |

|Objective 1: |Identify areas in Agriculture where financing may be needed. |

| |Slide 2 |

| |There are many areas involved in Agriculture where financing may be needed. Today We will learn about some areas where different |

| |types of loans may be needed. |

| |Start up costs for Ag enterprises can be very substantial. Attorney fees, incorporation expenses, site development cost and product |

| |development costs are examples of costs incurred when starting a business. |

| |Purchasing land, buildings, machinery, and equipment can also be a major area of Agriculture where financing is needed. Land cost is|

| |generally financed for both production agriculturalists and those in the Ag business sector as well. Land cost is very sizeable and |

| |is usually financed over a long period of time. Cost of Buildings, equipment and machinery are also large cost items that usually |

| |are financed over time. |

| |Operating expenses are another area of Agriculture where loans are used. Operating expenses include everything that is used in the |

| |day to day operation of the business. |

|Objective 2: |Classify loans based on length of financing. |

| |Slide 3 |

| |Short term loans are loans that generally run for one year or less. Short term loans are most frequently used to cover the operating|

| |expenses of the business. Items like feed, fuel, fertilizer, seed, and land labor costs can be financed with short term operating |

| |notes. Once cash is generated then the loan is paid off .Short term loans can be paid off monthly or every six months to a year. |

| |Slide 4 |

| |Intermediate term loans are loans that are made for purchases of depreciable assets and are for 1 to 10 years in length. Livestock, |

| |machinery, vehicles, and equipment are typically the assets purchased with intermediate term loans. |

| |Slide 5 |

| |Long term loans are made for items that are financed longer than 10 years. Most long term loans are used to purchase land, buildings|

| |and housing. Mortgages are the typical long term credit instrument used to finance purchases of land, buildings and housing. |

| |Use a show what you know moment to review material in objective 1 and 2. Have students put notes and notebooks away and orally ask |

| |questions over the material presented. Some sample questions would be |

| |What is a short term loan? |

| |What is a long term loan? |

| |What is an intermediate term loan? |

|Objective 3: |List sources of Agricultural loans. |

| |There are many different sources of credit available to Ag businesses. The Farm Credit system, commercial banks, commodity credit |

| |corporation, life insurance companies, local businesses, and private individuals all provide loans for individuals and business |

| |involved in Agriculture. |

| |Short term operating loans are generally provided by local banks, local businesses and merchants as well as private individuals. |

| |When your parents buy your market animals or your feed and you pay them back after the livestock sale you are getting a short term |

| |loan from your parents. |

| |Intermediate term loans are provided by local banks, individuals, and loan institutions that are tied to specific businesses such as|

| |GMAC credit or Ford Credit. |

| |Long Term loans are provided by individuals, The Farm Credit system, commercial banks, Life insurance companies, as well as many |

| |private mortgage companies |

| |Slide 6 |

| |Mortgages are long term loans that are generally used to finance the purchase of homes. Mortgages are generally offered in 15 and 30|

| |year lengths with many options to choose from. Generally a payment schedule is developed for the life of the loan with equal |

| |payments made monthly for the life of the loan. An amortization Table can help in quickly determining what the monthly payment |

| |would be at different interest rates AND VARYING LENGTH OF LOAN |

|Review/Summary: |Use the Picasso moment to have students draw pictures of types of assets each loan type is used for. Example short term loan – |

| |students would draw feed bags, fertilizer, trucks, etc. Intermediate term loans –students would draw trucks, tractors etc. Long |

| |term loans- students would draw buildings, ranches houses etc. Use the me you us moment to review all other material. |

|Application--Extende|Have students access one of the many interactive monthly payment calculators on the internet. Students should enter different |

|d Classroom |interest’s amounts and varying loan lengths. |

|Activity: | |

|Application--FFA |Students should participate in the Farm business Management contest. |

|Activity: | |

|Application--SAE |Have them write a paragraph explaining how they use loans in their personal SAE. If at this time they do not use a loan |

|Activity: |of any sort have them write about a friend nearby that may use a loan. |

| |Have the students find an asset they would like to have for their SAE and have them go through the process of getting this asset |

| |financed as they would at a local financial institution. |

|Evaluation: |See loan Quiz below |

|Evaluation Answer |1.T, 2. T, 3. F, 4. F, 5. T 6. Answers will vary |

|Key: | |

|Other: | |

LOANS AND LOAN TYPES QUIZ

NAME ____________________________________ DATE ____________________________________

1. T OR F Loans are an important part of Agriculture

2. T OR F Operating notes are an example of a Short term loan.

3. T OR F Vehicles financed through Ford Credit are considered long term loans

4. T OR F Breeding livestock, machinery, and equipment are generally financed long term.

5. T OR F Mortgages are long term loans generally used to purchase homes

6. Write a short paragraph on the loan type you feel is most prevalent in Agriculture today.

AMORTIZATION TABLE

INTEREST RATE

|YEAR |4% |5% |6% |7% |8% |9% |10% |11% |12% |

|2 |0.5302 |0.5378 |0.5454 |0.5531 |0.5608 |0.5685 |0.5762 |0.5839 |0.5917 |

|3 |0.3603 |0.3672 |0.3741 |0.3811 |0.3880 |0.3951 |0.4021 |0.4092 |0.4163 |

|4 |0.2755 |0.2820 |0.2886 |0.2952 |0.3019 |0.3087 |0.3155 |0.3223 |0.3292 |

|5 |0.2246 |0.2310 |0.2374 |0.2439 |0.2505 |0.2571 |0.2638 |0.2706 |0.2774 |

|6 |0.1908 |0.1970 |0.2034 |0.2098 |0.2163 |0.2229 |0.2296 |0.2364 |0.2432 |

|7 |0.1666 |0.1728 |0.1791 |0.1856 |0.1921 |0.1987 |0.2054 |0.2122 |0.2191 |

|8 |0.1485 |0.1457 |0.1610 |0.1675 |0.1740 |0.1807 |0.1874 |0.1943 |0.2013 |

|9 |0.1345 |0.1407 |0.1470 |0.1535 |0.1601 |0.1668 |0.1736 |0.1806 |0.1877 |

|10 |0.1233 |0.1295 |0.1359 |0.1424 |0.1490 |0.1558 |0.1627 |0.1698 |0.1770 |

|15 |0.0899 |0.0963 |0.1030 |0.1098 |0.1168 |0.1241 |0.1315 |0.1391 |0.1468 |

|20 |0.0736 |0.0802 |0.0872 |0.0944 |0.1019 |0.1095 |0.1175 |0.1256 |0.1339 |

|25 |0.0640 |0.0710 |0.0782 |0.0858 |0.0937 |0.1018 |0.1102 |0.1187 |0.1275 |

|30 |0.0578 |0.0651 |0.0726 |0.0806 |0.0888 |0.0973 |0.1061 |0.1150 |0.1241 |

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