The determination of Farm Service Agency loan size : the Georgia case
Brooks, Rodney Lamont
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The Farm Service Agency (FSA) administers two types of loan programs - Direct and Guaranteed - which cater to borrowers in different financial situations. These programs are considered to be temporary and last resorts for distressed farmers. This study sought to validate the contention that the FSA operates as a "lender of last resort" for farm borrowers considered highly risky by other lenders and that the FSA performs its role without discriminating against socially disadvantaged applicants. The loan portfolio data are for Georgia for the period 1999 to 2002. The hypothesized model contains the common components of previous credit scoring models plus binary variables to capture differences in regional lending practices and identified probable indicators of discriminatory lending practices. According to the findings of this study, the FSA seems to be living up to its primary role as the lender of last resort for farmers who have experienced hardships. The FSA seemingly does not scrutinize the financial backgrounds of borrowers as one would expect from commercial lenders. Thus, the financial background of a borrower appears not to have a significant effect on the size of loans granted by the FSA. This is apparent for both FSA loan types - Direct and Guaranteed.