The credit advantage of farm and rural small business ownership

Abstract

PurposeNonfarm small businesses are an integral part of the US economy, and access to credit is crucial to their success. In rural America, a significant proportion of these businesses are owned by farm households. The purpose of this research is to compare farm households that operate a nonfarm business to other farm households as well as to rural and urban households operating a small business; and identify key factors that differentiate these businesses in their access to credit.Design/methodology/approachThe paper uses a unique data set to draw comparisons between farm households (from Agricultural Resource Management Survey data) and rural and urban small businesses (from Survey of Small Business Finances data). Each of these data sets asks similar financial, demographic, and access to credit questions. Combining these data provide a unique way to analyze the financial health of farm households that operate nonfarm businesses.FindingsThe paper finds that farm households with a nonfarm business tend to have more household income and assets than other rural and urban small businesses and farm households without a nonfarm business. However, rural small business owners as well as farmers were able to access credit more freely than their urban counterparts.Originality/valueMany studies have looked at the farmer's decision to work or invest off the farm. However, no study has considered the impact of owning a nonfarm business on the financial health and creditworthiness of a farm household.