Factors affecting the agricultural loan decision-making process
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 responses 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 nonfinancial 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 offer a comparison of agricultural lending between two important agricultural states and provide lenders with insight on the factors that influence the decision-making process of other agricultural lenders.
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Volume (Year): 67 (2007)
Issue (Month): 1 (May)
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References listed on IDEAS
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- Cole R. Gustafson, 1989. "Credit Evaluation: Monitoring the Financial Health of Agriculture," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 71(5), pages 1145-1151.
- Gustafson, Cole R. & Beyer, Ronald J. & Saxowsky, David M., 1991. "Credit Evaluation: Investigating the Decision Process of Agricultural Loan Officers," Proceedings: 1991 Regional Committee NC-161, September 23-24, 1991, St. Louis, Missouri 130940, Regional Research Committee NC-1014: Agricultural and Rural Finance Markets in Transition.
- Barry, Peter J. & Ellinger, Paul N., 1989. "Credit Scoring, Loan Pricing, And Farm Business Performance," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 14(01), July.
- Allen M. Featherstone & Laura M. Roessler & Peter J. Barry, 2006. "Determining the Probability of Default and Risk-Rating Class for Loans in the Seventh Farm Credit District Portfolio," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 28(1), pages 4-23.
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