Factors affecting the agricultural loan decisionmaking process

• Published in: Agricultural finance review Vol. 67; no. 1; pp. 13 - 33
• Main Authors: Featherstone, Allen M., Wilson, Christine A., Kastens, Terry L., Jones, John D.
• Format: Journal Article
• Language: English
• Published: Emerald Group Publishing Limited 05-05-2007
• Subjects: Agricultural loans; Credit bureau score; Credit evaluation; Interest rates
• ISSN: 0002-1466
• DOI: 10.1108/00214660780001195

Agricultural lenders in todays 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 borrowers 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 decisionmaking process of other agricultural lenders.