Loan packaging decisions for beginning African American and other socially disadvantaged farmers

Abstract

This study presents evidence on the relative accommodation of credit requests made by minority start-up entrepreneurs in the U.S. farm sector. Loan packaging terms (amount, interest rate, and maturity) prescribed by lending officers of the Farm Service Agency, the government's lending arm to the farm sector, are analyzed and compared across racial/ethnic and gender groups of borrowers. The intention is to discern whether prescribed loan terms are favorable and supportive of the new farms' business growth and survival goals and uncover any trends of preferential treatment for certain groups of borrowers. Econometric results did not uncover any significant deviations in the lenders' decisions for beginning African American and White farmers for all three components of the loan package. While most packaging term decisions were similar among borrowers of different racial/ethnic attributes, the only exceptional terms were significantly larger loan amounts for American Indians and higher interest rates for Hispanic Americans. Compared to farmers in the South, loan term decisions seem to align with regional concentrations of farm typologies, such as the prevalence of livestock operations in the Plains and Midwest that require longer loan repayment periods and larger crop farms in the West with higher loan amount approvals.