Monitoring Credit Conditions in Rural America
By Brian C. Briggeman, Economist
A steep recession and financial meltdown have
led to tight credit markets in rural America.
With rising loan delinquency and default rates,
the creditworthiness of some businesses has declined. In
response, banks have raised credit standards on farm and
nonfarm loans, limiting credit access for many business
owners. In fact, 41 percent of small business owners
reported seeing their 2009 credit limits reduced.1
The lack of credit for rural business owners,
including farmers, leads to lower levels of investment
and employment. Young and beginning business owners
are often the most vulnerable. To boost the availability
of credit for business owners and jumpstart the rural
economy, the federal stimulus package has expanded funds
for existing loan guarantee programs. Still, credit market
risk remains high, and business owners are concerned
about future access to credit.
This article explains how credit conditions are
evolving for rural business owners. While federal credit
programs have been expanded, credit conditions remain
tight, and rural business owners worry about credit access
in the future. Fortunately, a few straightforward gauges
can shed light on current credit conditions and provide
rural business owners information they can use to identify
when credit markets turn.
How TigHT Are CrediT MArkeTs?
In less financially stressed times, most rural business
owners are able to secure credit. In fact, less than 5 percent
of business owners were denied credit in 2005. Those most
likely to be denied credit in normal times had low net worth.
Farmers are generally more likely to receive credit thanks to
their high net worth resulting from strong land value gains.
Nonfarm business owners, in contrast, typically have less net
worth and are less able to secure credit (Chart 1).
Today, all types of rural businesses are experiencing
tighter credit markets. At the height of the financial crisis,