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The Effects of FmHa Guaranteed Farm Loans on Rural Credit Markets

Author

Listed:
  • Patrick J. Sullivan

    (Economic Research Service, U.S. Department of Agriculture)

  • William M. Herr

    (Southern illinois University-Carbondale)

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.

Suggested Citation

  • Patrick J. Sullivan & William M. Herr, 1990. "The Effects of FmHa Guaranteed Farm Loans on Rural Credit Markets," The Review of Regional Studies, Southern Regional Science Association, vol. 20(2), pages 50-59, Spring.
    • Handle: RePEc:rre:publsh:v20:y:1990:i:2:p:50-59
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    References listed on IDEAS

    as
    1. Glen Rogers & Ron Schaffer & Glen Pulver, 1988. "Identification of Local Capital Markets for Policy Research," The Review of Regional Studies, Southern Regional Science Association, vol. 18(1), pages 55-66, Winter.
    2. Mark Drabenstott & Charles Morris & Landell Froerer, 1989. "New Sources of Financing for Rural Development," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 71(5), pages 1315-1323.
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    Cited by:

    1. Koenig, Steven R. & Dodson, Charles B., 2001. "Explaining Regional Demand for USDA Direct Farm Loan Programs, 1995-99," 2001 Regional Committee NC-221, October 1-2, 2001, McLean, Virginia 132403, Regional Research Committee NC-1014: Agricultural and Rural Finance Markets in Transition.
    2. McWilliams, Bruce T., 2013. "The Capital Structure of Commercial Banks and its Impact on Participation in the Farm Service Agency's Guaranteed Loan Program," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150464, Agricultural and Applied Economics Association.
    3. Dodson, Charles B. & Koenig, Steven R., 2001. "Explaining Regional Demand for Federal Farm Credit Programs: An Ordinal Probit Approach," 2001 Annual meeting, August 5-8, Chicago, IL 20571, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    4. Settlage, Latisha A. & Dixon, Bruce L. & Ahrendsen, Bruce L. & Koenig, Steven R., 2006. "Factors Determining the Use of Guaranteed Loans by U.S. Commercial Banks," 2006 Annual meeting, July 23-26, Long Beach, CA 21474, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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    1. Glenn Rogers & Ron Shaffer & Glen Pulver, 1990. "The Adequacy of Capital Markets for Rural Nonfarm Businesses," The Review of Regional Studies, Southern Regional Science Association, vol. 20(3), pages 23-32, Fall.

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