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

Christine Wilson, Allen Featherson (), Terry Kastens () and John Jones ()
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Terry Kastens: Department of Agricultural Economics, Kansas State University
Authors registered in the RePEc Author Service: Allen Featherstone

No 06-07, Working Papers from Purdue University, College of Agriculture, Department of Agricultural Economics

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.

Keywords: Agricultural loans; Credit bureau score; Credit evaluation; Interest rates (search for similar items in EconPapers)
JEL-codes: G2 G21 (search for similar items in EconPapers)
Pages: 71 pages
Date: 2006
New Economics Papers: this item is included in nep-agr, nep-ban and nep-fin
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Citations: View citations in EconPapers (5)

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http://ageconsearch.umn.edu/bitstream/28678/1/sp060007.pdf (application/pdf)

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Working Paper: DETERMINING WHAT'S REALLY IMPORTANT TO LENDERS: FACTORS AFFECTING THE AGRICULTURAL LOAN DECISION-MAKING PROCESS (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:pae:wpaper:06-07

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