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Determining What's Really Important to Lenders: Factors Affecting the Agricultural Loan Decision-Making Process

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Author Info

  • Christine Wilson

    ()
    (Department of Agricultural Economics, College of Agriculture, Purdue University)

  • Allan Featherston

    ()

  • Terry Kastens

    ()
    (Department of Agricultural Economics, Kansas State University)

  • John Jones

    ()

Abstract

Agricultural lenders in today’s environment face many challenges when evaluating the creditworthiness of farm borrowers. To address these challenges, a survey was conducted with financial institutions in Kansas and Indiana where agricultural lenders were asked for their response to hypothetical agricultural loan requests. Each loan request differed by the borrower’s character, financial record keeping, productive standing, Fair Isaac credit bureau score, and credit risk. Lenders provided information about themselves and their financial institutions. The survey data obtained determine the relative importance of financial and non-financial information when analyzing agricultural loan applications. Tobit models are estimated to identify the borrower and lender characteristics that are important in determining loan approval while OLS models are used to investigate the factors that affect interest rates offered to farm borrowers. The results provide a comparison of agricultural lending between two important agricultural states. The results from this analysis also provide lenders with insight on the factors that influence the decision making process of other agricultural lenders.

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File URL: http://ageconsearch.umn.edu/bitstream/28678/1/sp060007.pdf
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Bibliographic Info

Paper provided by Purdue University, College of Agriculture, Department of Agricultural Economics in its series Working Papers with number 06-07.

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Length: 71 pages
Date of creation: 2006
Date of revision:
Handle: RePEc:pae:wpaper:06-07

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Related research

Keywords: Agricultural loans; Credit bureau score; Credit evaluation; Interest rates;

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Cited by:
  1. Myyra, Sami & Pietola, Kyosti & Heikkila, Anna-Maija, 2011. "Farm Level Capital: Capital positions, structures, the dynamics of farm level investments, capital accumulation and leverage positions," Working Papers, Factor Markets, Centre for European Policy Studies 117488, Factor Markets, Centre for European Policy Studies.

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