Part 7 of 9 · The decision
How Funders Actually Decide, and What to Bring
Whatever the institution and whatever language its brochure uses, an agricultural credit decision reduces to five tests. Structure your application so each is answered explicitly and early.
Part 7 of 978% through the guide
Answer each one explicitly on the first page rather than leaving the analyst to hunt for it.
Section 3.1Matching the instrument to the need
Money has a shape. Using the wrong instrument for a given need is a common cause of business failure even when the funding is successfully raised — most often a short-term facility used to buy a long-lived asset, leaving the business unable to repay before the asset has earned anything.
The right and wrong instrument for eight common financing needs in African agriculture.
Section 3.2The documentation pack
Assemble this before you approach anyone. An application that arrives complete is assessed in weeks; an application assembled item by item in response to queries takes months and signals disorganisation at exactly the moment you are being judged on operational competence.
| Category | Documents | Notes |
|---|---|---|
| Legal & identity | Certificate of incorporation; company profile and shareholding; directors’ identification; tax clearance certificate; sector permits and licences | Tax clearance is the single most common cause of delay. Start it first — it can take weeks |
| Land & assets | Title deed, lease, permission to occupy or customary certificate; asset register; valuation reports; plot maps or GPS coordinates | Long leases and PTOs are accepted as security by several schemes — do not assume you are ineligible without title |
| Financial history | Three years of financial statements, audited if available; 12 months of bank statements; management accounts; debtors and creditors ageing | If you have no statements, produce a reconstructed set from bank records and sales books, and say clearly that is what it is |
| Commercial evidence | Offtake agreements or letters of intent; purchase orders; buyer references; historical sales records; delivery and weighbridge tickets | This is the section that decides marginal applications. Strengthen it above all else |
| Production evidence | Yield history by plot and season; input usage records; agronomist or extension officer report; certifications | Verifiable yield history is the closest thing to an audited account that a primary producer has |
| The plan | Business plan; financial model with monthly cash flow; funding request with clear use of proceeds; risk register | The model must reconcile to historical accounts. Analysts check this first |
| Risk mitigation | Insurance policies or quotes; supply and marketing contracts; succession and key-person arrangements | Crop or asset insurance is a condition of most agricultural lending. Get the quote before you are asked |
Section 3.3Building a financial model a funder will believe
Most agricultural business plans are rejected on their numbers, and usually for the same handful of reasons. The model does not have to be sophisticated. It has to be defensible.
- Model monthly, not annually. Agriculture is seasonal. An annual model hides the four months where you are out of cash, which is precisely the period the lender is exposed. A monthly cash flow across at least three years is the minimum credible standard.
- Justify every yield and price assumption with a source. An assumption with a footnote is an argument; an assumption without one is a guess.
- Use conservative yields. Assume something at or below your historical average, not the trial plot result or the seed company brochure figure. If the deal only works at best-case yields, the deal does not work.
- Build the loan into the model. Show the drawdown, the interest, the repayment schedule and the resulting debt service coverage ratio. Funders want to see a DSCR above about 1.3 times. If you do not calculate it, they will — and they will not tell you the answer.
- Sensitise the three variables that matter. Yield down 20 per cent, price down 20 per cent, input costs up 20 per cent — and all three together. A plan that survives its own downside case is worth several percentage points of interest.
- Reconcile to the past. If last year’s revenue was US$400,000 and year one of the model shows US$1.6 million, the model is not believed and neither is anything else in the document. Explain every step change explicitly.
- State the uncomfortable conclusions in the summary. If year one is loss-making, if the payback is five years, if the project is marginal below a certain price — say so on the first page. Analysts find these things anyway, and finding them yourself is the strongest available signal that the rest of your numbers can be trusted.
Section 3.4Collateral: the problem and the alternatives
Lack of conventional security is the most cited obstacle in African agricultural finance. It is also the obstacle with the largest number of existing workarounds, most of which entrepreneurs do not know about.
| Alternative | How it works |
|---|---|
| Guarantee schemes | A national or donor guarantee substitutes for security over a large share of the loan. This is the first thing to ask about, always |
| The financed asset itself | Under asset finance or leasing, the tractor or processing line is the security. No land title required |
| Assignment of the offtake contract | The lender takes a legal assignment of your receivables and the buyer pays into the loan account. Where the buyer is creditworthy, this can substitute almost entirely for physical security |
| Warehouse receipts | Graded commodity in a certified warehouse is acceptable collateral in every market with a functioning system |
| Long leases and permission-to-occupy | Several schemes explicitly accept a lease or PTO longer than the funding period. Do not disqualify yourself |
| Movable asset registries | Many African countries now allow security over equipment, livestock, vehicles, inventory and receivables. Ask whether your lender lends against registered movable collateral |
| Cash cover and group guarantees | A cash deposit covering part of the facility, or a joint guarantee from a cooperative or producer group |
| Insurance as quasi-security | A crop insurance policy assigned to the lender covers the specific risk they fear most and can reduce the security they demand |
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