The Cooperative Extension Service Should Provide Farmers With More Information on Farm Credit Sources

CED-80-45: Published: Feb 27, 1980. Publicly Released: Feb 27, 1980.

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Farmers are finding more than ever that borrowing is a necessity. However, information on sources of credit, interest rates and terms, and how to apply for farm credit is available only on a piecemeal basis from lenders, the Cooperative Extension Service, and other sources. While the supply of credit from the numerous farm lenders has generally been adequate to meet the needs of qualified borrowers, beginning and marginal operators have had problems getting credit and repaying outstanding loans. Lenders may determine that a farmer lacks sufficient repayment ability or collateral or, in other instances, local credit conditions or lending practices may restrict the number of credit sources available. However, several potential sources of credit often exist for a given situation, with different effects on the borrower. Further, the time required to process and approve an application, loan servicing, availability of funds during periods of tight credit, and the amount of downpayment required can significantly affect a borrower's ability to repay a loan, make a profit, and succeed in business. In an effort to meet the farmer's need for increased availability of credit information, GAO randomly sampled 419 farmers nationwide who have applied for farm credit in the past 5 years and are able to make the financial decisions for the farm they own or operate. Over one-third of the responding farmers had not heard of 10 or more of the 16 basic types of farm lenders. In addition, a large number of the sampled farmers were unaware of the types of loans available from each of the five largest lenders. A range of from 14 to 92 percent of the farmers who applied only for short-term loans were not aware of which of the five major lenders make this type of loan. Similar results were obtained for those farmers who applied for long-term loans.

Fifty-one percent of the sample farmers said that a central source of credit information is definitely needed. Conversely, 32 percent said a central information source is definitely or probably not needed. Support for a central information source is strongest among young, beginning, and small volume farmers. The weakest support was expressed by the older, more experienced farmers. Farmers who said that a central credit source was not needed were slightly more knowledgeable about major lenders than the overall sample of farmers. Nevertheless, many of these farmers lack basic knowledge about the availability of credit from major lenders and know even less about the smaller volume lenders. GAO believes that although existing programs cannot practicably fulfill all of the farmers' credit information needs, the Cooperative Extension Service could provide more information because of the availability of its personnel and network of county offices in farming communities. Providing a central source of credit information would supplement other Federal programs designed to aid the family farm sector, and this information would: (1) identify private and public credit programs available to help potential farmers get a start in farming; (2) help financially sound farmers to improve their efficiency, and (3) direct financially marginal farmers to the private and public credit sources that can help them remain in business.

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