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Factors Affecting the Agricultural Loan Decision-Making Process

Author

Listed:
  • Featherstone, Allen M.
  • Wilson, Christine A.
  • Kastens, Terry L.
  • Jones, John D.

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.

Suggested Citation

  • Featherstone, Allen M. & Wilson, Christine A. & Kastens, Terry L. & Jones, John D., 2005. "Factors Affecting the Agricultural Loan Decision-Making Process," 2005 Agricultural and Rural Finance Markets in Transition, October 3-4, 2005, Minneapolis, Minnesota 132749, Regional Research Committee NC-1014: Agricultural and Rural Finance Markets in Transition.
  • Handle: RePEc:ags:nc2005:132749
    DOI: 10.22004/ag.econ.132749
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    File URL: http://ageconsearch.umn.edu/record/132749/files/Featherstone2005.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. 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.
    3. 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(1), pages 1-11, July.
    4. Gustafson, Cole R. & Beyer, Ronald J. & Saxowsky, David M., 1991. "Credit Evaluation: Investigating the Decision Process of Agricultural Loan Officers," 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.
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    Citations

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    Cited by:

    1. Johannes I. F. Henning & Henry Jordaan, 2016. "Determinants of Financial Sustainability for Farm Credit Applications—A Delphi Study," Sustainability, MDPI, Open Access Journal, vol. 8(1), pages 1-15, January.
    2. Christine Wilson & Allan Featherston & Terry Kastens & John Jones, 2006. "Determining What's Really Important to Lenders: Factors Affecting the Agricultural Loan Decision-Making Process," Working Papers 06-07, Purdue University, College of Agriculture, Department of Agricultural Economics.
    3. repec:gam:jsusta:v:8:y:2016:i:1:p:77:d:62175 is not listed on IDEAS
    4. Myyrä, Sami, & Pietola, Kyosti & Heikkilä, Anna-Maija, 2011. "Farm Level Capital: Capital positions, structures, the dynamics of farm level investments, capital accumulation and leverage positions," Factor Markets Working Papers 105, Centre for European Policy Studies.
    5. Geoffroy Enjolras & Philippe Madiès, 2019. "The determinants of loan acceptance: a case study of French farms," Economics Bulletin, AccessEcon, vol. 39(1), pages 358-371.
    6. Landerito, Aiko O. & Dixon, Bruce L. & Ahrendsen, Bruce L. & Hamm, Sandra J. & Danforth, Diana M., 2009. "Analyzing FSA Direct Loan Borrower Payback Histories: Predictors of Financial Improvement and Loan Servicing Actions," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49340, Agricultural and Applied Economics Association.
    7. Laura Brad & Gabriel Popescu & Alina Zaharia & Maria Claudia Diaconeasa & Daniela Mihai, 2018. "Exploring the Road to Agricultural Sustainability by Assessing the EU Debt Influencing Factors," Sustainability, MDPI, Open Access Journal, vol. 10(7), pages 1-46, July.
    8. Bruce L. Dixon & Bruce L. Ahrendsen & Brandon R. McFadden & Diana M. Danforth & Monica Foianini & Sandra J. Hamm, 2011. "Competing risks models of Farm Service Agency seven-year direct operating loans," Agricultural Finance Review, Emerald Group Publishing, vol. 71(1), pages 5-24, May.
    9. Gregory Nguh Muluh & Jude Ndzifon Kimengsi & Ngwa Kester Azibo, 2019. "Challenges and Prospects of Sustaining Donor-Funded Projects in Rural Cameroon," Sustainability, MDPI, Open Access Journal, vol. 11(24), pages 1-25, December.

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    Keywords

    Agricultural Finance;

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