Rural Financial Trends: How Are Lenders and Interest Rates Changing?

In recent history, it looked to many as if rural financial markets would become dominated by large banks that offered relatively expensive credit to agricultural firms. However, the 1990's have seen a resurgence in smaller banks with a focus on smaller, agricultural producer loans. Moreover, small banks may be more competitive than ever with respect to interest rates. This report outlines some of the important trends in rural credit markets including the types of lenders, volume of loans, interest rate trends and some discussion of specific types and sizes of loans. It is our hope that such information will allow agricultural firms and organizations to make more informed decisions with respect to securing capital, as well as choosing an appropriate lending institution. Farm Loan Statistics: What is a Typical Farm Loan and Average Interest Rate? 2 Although statistics on farm loans may not be of great interest to a producer who is only interested in his or her own individual credit line, the numbers can say a lot about what types of loans are more often available, or more affordable, with certain types of lenders. As some of these trends show, it is also important for agricultural firms to know the going interest rates, as prevailing rates may have changed by a full percentage point since the borrower last secured credit. Although the average loan size has continued to increase throughout the 90's (Figure 1), the largest number of farm loans continue to be in the small loan category ($1-9,000). The average may be skewed by the fact that significantly larger loans are being given in the highest loan category (an average $385,000 in 1997 compared to $280,000 in 1986). It should also be noted that the average loan given by large banks has increased by about 40% ($92,000 in 1997 compared to $62,000 in 1986), while loans made by smaller banks RURAL FINANCIAL TRENDS: HOW ARE LENDERS AND INTEREST RATES CHANGING?