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Factors Affecting Successful Agricultural Loan Applications: The Case of a South African Credit Provider

Department Agricultural Economics, University of the Free State, 205 Nelson Mandela Ave, Bloemfontein 9301, South Africa
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Agriculture 2019, 9(11), 243; https://doi.org/10.3390/agriculture9110243
Received: 18 October 2019 / Revised: 5 November 2019 / Accepted: 7 November 2019 / Published: 13 November 2019
The purpose of the paper is to determine the influence of different factors used by a formal credit institution to evaluate loan applications in the agricultural sector. The research attempts to capture the actual factors considered by credit institutions rather than the traditional factors found in literature. Loan applications from 128 farmers, predominantly commercial farmers, were obtained from a credit institution with branches situated in various provinces of South Africa. Data consisted of loan application information which is broader than the financial information normally obtained in credit research, and the final decision of the credit provider. Principal component logistic regression was used to investigate the likeliness with which loan application variables influence the outcome of the loan application. Results indicate that loan applications that are more likely to be successful are older more experienced farmers, who can provide sufficient collateral, have more years of business with the credit provider, have an acceptable credit history, request smaller loan amounts, have lower interest expense ratio, higher production cost ratios, and have diversification strategies. This paper contributes to knowledge on information used by financial credit providers (institutions) in classifying agricultural loan applications as successful as guided by actual factors used in credit decision making by the credit provider. View Full-Text
Keywords: agricultural finance; principal component analysis; logistic regression; repayment ability; South Africa agricultural finance; principal component analysis; logistic regression; repayment ability; South Africa
MDPI and ACS Style

Henning, J.I.F.; Bougard, D.A.; Jordaan, H.; Matthews, N. Factors Affecting Successful Agricultural Loan Applications: The Case of a South African Credit Provider. Agriculture 2019, 9, 243.

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