Business profits are based upon the right combination of land, labor, owned capital, management and credit. The use of credit is one of the major decisions a farmer or any business manager will make that can add to the success of the business or lead to its demise. The wise use of credit can provide the means for growth and success. Poor credit decisions can result in failure, which often happens as a result of expansion in good times when earnings are high, without proper planning for the tough times when earnings are weak.

One way to plan ahead is to review the Seven Credit Principles before borrowing large sums of money. Those important principles are.

• Use credit for productive purposes. Borrowed funds should be used primarily for purposes that will increase income.
• Keep debts in line with income and repayment capacity. Revenue must be sufficient to meet operating expenses, debt retirement, and allow for a reasonable return on investment.
• Credit should be used where it will generate the highest return within a reasonable risk level. Limited dollars should be allocated first to the enterprise(s) that are expected to give the highest return.
• Know your business. Keep good records, evaluate performance, and regularly review the resources available for production.
• Limit borrowing on unfamiliar enterprises. Ability to manage an enterprise should be tested before it is expanded through borrowed funds, if possible. If not possible, the idea should be tested with a computer spreadsheet using conservative figures.
• Be businesslike, frank and fair in credit dealings. Be prepared to present your credit case. Be able to back up your position. Pay promptly. Communicate regularly. Discuss repayment problems early.
• Shop for a loan and select a dependable lender. Loan terms and conditions vary by lenders. The services lenders offer and their commitment to agriculture are different. Know whom you are dealing with.