Racial Disparities in Farm Loan Application Processing: Are Black Farmers Disadvantaged?
New AAEA member research released in AEPP
New research finds that FSA direct loans for Black farmers took about 2 days longer on average than loans for all other farmers to be completed and processed. However, the effect was almost entirely concentrated among operating loans (OLs). But why?
In the new article “Racial Disparities in Farm Loan Application Processing: Are Black Farmers Disadvantaged?” published in the Applied Economic Perspectives & Policy, Ashok Mishra from Arizona State University, Gianna Short and Charles Dodson from the USDA’s Farm Production and Conservation Business Center, find out if processing time for FSA direct loans differ between black and non-back applicants.
The authors say, “The concentration of the effect almost entirely among OLs is not consistent with discrimination based on racial prejudice, which would be expected to result in a similar pattern among all loan types. Rather, the differences are likely influenced by the unique characteristics associated with OLs. Specifically, the shorter term for OLs means that repayment is more highly dependent on projected cash flow, the development of which can be more challenging for applicants with fewer financial resources, less financial literacy or training, and greater uncertainty about future income. Historical discrimination likely plays a role in explaining these differences. The long history of discrimination in rural Black communities may have increased friction between the respective communities. As such Black borrowers might be hesitant to rely on the USDA and FSA staff might exhibit an excess of caution in processing Black applications.”
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