Strategic behavior of nontraditional lenders in agricultural credit markets

Abstract

PurposeThis paper examines credit products, operational performance and business models employed by nontraditional lenders (NTLs) in agricultural credit markets.Design/methodology/approachTwo research methods were employed in this study: (1) an executive interview to collect primary data and (2) a case study approach to analyze the findings and develop insights.FindingsThe findings indicate the presence of significant differences among lenders across and within three categories of NTLs (large volume, vendor financing and collateral-based NTLs). For example, collateral-based NTLs employ different strategies focusing on types of loans, funding sources, commodities they support and geographic coverage to further segment the market. NTLs in this study were able to capture market by successfully identifying gaps in the supply side of agricultural credit and developing products that meet the needs of that niche (e.g. heavy renters, large operations, producers seeking fixed interest rates for term loans, financially fragile producers). Most of the interviewed NTLs had credit standards comparable to those of traditional lenders and consider them both competitors and partners since many NTLs partner with traditional lenders on participation loans, loan servicing and/or sourcing funds.Originality/valueThe supply side of a nontraditional lending has not been studied extensively due to the proprietary nature of data. The executive interviews conducted in this study allowed for accumulation of industry data, which is not available otherwise.

Guest editorial: Nontraditional Credit in U.S. Agriculture

“…Likewise, USDA farm survey data (ARMS) yielded important insights in several studies in this special issue, but data on non-traditional lenders in ARMS are heavily skewed towards implement-dealer lenders (Ifft et al , 2017). Tetteh et al (2022) highlight the dearth of data on collateral-based lenders, while Lyons and Takash (2022) provide evidence that various types of non-traditional lenders play a significant role in farm real estate lending. The findings of Ahrendsen et al (2022) suggest the importance of studying vendor finance for short-term inputs, while Thilmany et al (2022) suggest that beginning farmers pursue diverse financing strategies and these may not be well reflected in farm survey data.…”

“…Credit markets "Strategic behavior of nontraditional lenders in agricultural credit markets" (Tetteh et al, 2022) conducted in-depth case studies with five non-traditional lenders: one was engaged in vendor finance, while the other four would be considered collateral-based lenders. The insights highlighted in the paper, especially into collateral-based lenders, make an important and unique contribution to current understanding of non-traditional finance.…”