Real Estate Construction loans consist of loans made for both residential and
commercial construction and land development. Residential real estate construction
loans are loans secured by real estate to build 1-4 family dwellings. These
are loans made to borrowers obtaining loans in their personal name for the personal
construction of their own dwellings, or loans to builders for the purpose of
constructing homes for resale. These loans to builders can be for speculative
homes for which there is no specific homeowner for which the home is being built,
as well as loans to builders that have a pre-sale contract to another individual.
Commercial construction loans are loans extended to borrowers secured by and
to build commercial structures such as churches, retail strip centers, industrial
warehouses or office buildings. Land development loans are granted to commercial
borrowers to finance the improvement of real estate by adding infrastructure
so that ensuing construction can take place. Construction and land development
loans are generally short term in maturity to match the expected completion
of a particular project. These loan types are generally more vulnerable to changes
in economic conditions in that they project there will be a demand for the project.
They require monitoring to ensure the project is progressing in a timely manner
within the expected budgeted amount. This monitoring is accomplished via periodic
physical inspections by an outside third party.
1-4 Family Residential loans consist of both open end and closed end loans secured
by first or junior liens on 1-4 family improved residential dwellings. Open
end loans are home equity lines of credit that allow the borrower to use equity
in the real estate to borrow and repay as the need arises. First and junior
lien residential real estate loans are closed end loans with a specific maturity
that generally does not exceed 7 years. Economic conditions can affect the borrower’s
ability to repay the loans and the value of the real estate securing the loans
can change over the life of the loan.
Commercial Real Estate loans consist of loans secured by farmland or by improved
commercial property. Farmland includes all land known to be used or usable for
agricultural purposes, such as crop and livestock production, grazing, or pasture
land. Improved commercial property can be owner occupied or non-owner occupied
secured by commercial structures such as churches, retail strip centers, hotels,
industrial warehouses or office buildings. The repayment of these loans tends
to depend upon the operation and management of a business or lease income from
a business, and therefore adverse economic conditions can affect the ability
to repay.
Other Real Estate Secured Loans consist of loans secured by five or more multi-family
dwelling units. These loans are typically exemplified by apartment buildings
or complexes. The ability to manage and rent units affects the income that usually
provides repayment for this type of loan.
Commercial, Financial, and Agricultural loans consist of loans extended for
the operation of a business or a farm. They are not secured by real estate.
Commercial loans are used to provide working capital, acquire inventory, finance
the carrying of receivables, purchase equipment or vehicles, or purchase other
capital assets. Agricultural loans are typically for purposes such as planting
crops, acquiring livestock, or purchasing farm equipment. The repayment of these
loans comes from the cash flow of a business or farm and is generated by sales
of crops or inventory or providing of services. The collateral tends to depreciate
over time and is difficult to monitor. Frequent statements are required from
the borrower pertaining to inventory levels or receivables aging.
Consumer loans consist largely of loans extended to individuals for purposes
such as to purchase a vehicle or other consumer goods. These loans are not secured
by real estate but are frequently collateralized by the consumer items being
acquired with the loan proceeds. This type of collateral tends to depreciate
and therefore the term of the loan is tailored to fit the expected value of
the collateral as it depreciates, along with specific underwriting policies
and guidelines.