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Loan packaging decisions for beginning African American and other socially disadvantaged farmers

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  • Cesar L. Escalante
  • Penghui Gao
  • William Secor

Abstract

This study presents evidence on the relative accommodation of credit requests made by minority start‐up entrepreneurs in the U.S. farm sector. Loan packaging terms (amount, interest rate, and maturity) prescribed by lending officers of the Farm Service Agency, the government's lending arm to the farm sector, are analyzed and compared across racial/ethnic and gender groups of borrowers. The intention is to discern whether prescribed loan terms are favorable and supportive of the new farms' business growth and survival goals and uncover any trends of preferential treatment for certain groups of borrowers. Econometric results did not uncover any significant deviations in the lenders' decisions for beginning African American and White farmers for all three components of the loan package. While most packaging term decisions were similar among borrowers of different racial/ethnic attributes, the only exceptional terms were significantly larger loan amounts for American Indians and higher interest rates for Hispanic Americans. Compared to farmers in the South, loan term decisions seem to align with regional concentrations of farm typologies, such as the prevalence of livestock operations in the Plains and Midwest that require longer loan repayment periods and larger crop farms in the West with higher loan amount approvals.

Suggested Citation

  • Cesar L. Escalante & Penghui Gao & William Secor, 2024. "Loan packaging decisions for beginning African American and other socially disadvantaged farmers," American Journal of Economics and Sociology, Wiley Blackwell, vol. 83(1), pages 109-126, January.
    • Handle: RePEc:bla:ajecsc:v:83:y:2024:i:1:p:109-126
    DOI: 10.1111/ajes.12522
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    References listed on IDEAS

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    1. Escalante, Cesar L. & Brooks, Rodney L. & Epperson, James E. & Stegelin, Forrest E., 2006. "Credit Risk Assessment and Racial Minority Lending at the Farm Service Agency," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 38(1), pages 1-15, April.
    2. Escalante, Cesar L. & Epperson, James E. & Raghunathan, Uthra, 2009. "Gender Bias Claims in Farm Service Agency’s Lending Decisions," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 34(2), pages 1-18, August.
    3. Thomas Boehm & Paul Thistle & Alan Schlottmann, 2006. "Rates and race: An analysis of racial disparities in mortgage rates," Housing Policy Debate, Taylor & Francis Journals, vol. 17(1), pages 109-149.
    4. Chandra K. Dhakal & Cesar L. Escalante & Charles Dodson, 2019. "Heterogeneity of farm loan packaging term decisions: a finite mixture approach," Applied Economics Letters, Taylor & Francis Journals, vol. 26(18), pages 1528-1532, October.
    5. Ping Cheng & Zhenguo Lin & Yingchun Liu, 2015. "Racial Discrepancy in Mortgage Interest Rates," The Journal of Real Estate Finance and Economics, Springer, vol. 51(1), pages 101-120, July.
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