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The Effects of FmHa Guaranteed Farm Loans on Rural Credit Markets

Patrick Sullivan and William M. Herr
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William M. Herr: Southern illinois University-Carbondale

The Review of Regional Studies, 1990, vol. 20, issue 2, 50-59

Abstract: Credit markets allocate a limited supply of loanable funds among alternative uses. In the process, some firms and invesunents are judged too risky and are excluded from receiving "affordably priced" credit Other firms may experience credit rationing because of market imperfections. Over the years, a number of Federally sponsored loan programs have evolved to address perceived problems with the credit delivery system. Several Federal programs are targeted at rural firms, in particular, because of their dependence on fairly small, geographically segmented capital markets. This paper examines the use of one Federal program in an attempt to determine how the delivery mechanism influences credit availability within rural communities. The Farmers Home Administration (FmHA), an agency of the U.S. Deparunent of Agriculture, provides credit to farmers and other rural businesses, homeowners, and communities through direct loans and by guaranteeing privately originated loans. The underlying principle guiding FmHA is that the assisted entity must not be able to obtain credit from usual commercial sources at reasonable rates and terms, but is judged economically viable or capable of becoming so in the future. This paper examines FmHA' s farmer loan guarantee program operations during fiscal 1988 in an attempt to determine the characteristics of participating lenders and how lender behavior affects the guaranteed loan programs' impact on local credit markets.

Date: 1990
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