The company that brought credit scoring to small business lending is trying to do the same thing on the agricultural front.
Fair, Isaac & Co. is researching the size of the market for an farm credit-scoring product and is asking lenders for loan data so it can build a statistically based model.
"I can't make a commitment, but the probability is very high that there is going to be a scorecard," said Latimer Asch, vice president at the San Rafael, Calif.-based company. "There seems to be substantial demand."
Such a system might do for farm lending what it did for small-business lending: reduce a cumbersome, time-consuming task to a streamlined underwriting process that takes minutes.
A growing number of banks are using home-grown credit scoring techniques for their farm lending, and Fair, Isaac could potentially accelerate this trend.
"This could be large," said John M. Blanchfield, associate director of agricultural banking for the American Bankers Association. "If they see a market there, then the movement of ag lending toward credit scoring is going to happen faster."
Indeed, the company's small-business product, rolled out in early 1995, has been well received
Fair, Isaac began exploring the possibility of an farm credit scoring model four months ago in response to inquiries from banks and other lenders, Mr. Asch said.
"After we got a sufficient number of inquiries, we decided to go ahead with the research," Mr. Asch said.
Last month, Mr. Asch gave a presentation on credit scoring at the American Bankers Association's annual agricultural lending convention and used the opportunity to check out interest in a scoring model, he said.
The next step came Dec. 18, when the company decided that a farm credit scoring model was feasible and there was enough market interest to warrant further research.
While the money-center and regional banks compose most of Fair, Isaac's customer base, community banks have expressed interest in a scoring model.
"There was much more interest at the community bank level than in the small business or consumer" scoring products, Mr. Asch said. "The geographic reality is that you're going to have small banks focused on ag lending."
Farmers and Merchants National Bank in West Point, Neb., started developing a credit scoring system about five years and actively has been using it for nearly three, said president Philip M. Burns. The system helps the bank rate and price for risk.
Mr. Burns said he would look at another system, but was partial to his own, because it was designed specifically for the bank's niche of cattle raisers.
The president of the $71 million-asset bank was emphatic about the need for banks to apply credit scoring to farm lending.
"The banking industry is going to have to get more competitive," Mr. Burns said.
The imminent extinction of federal agriculture subsidies may drive more community banks to use credit scoring as a farm-lending tool, industry officials and observers said.
Using mathematical models to measure and price risk will probably become more popular in an environment where some farmers will take off and others stumble.
A midwestern community banker points to such a future as a reason his institution is testing a credit-scoring system.
"It'll be a situation in which both the operator and the lender will have to watch their margins," said the banker, an executive at a $50 million-asset institution who requested anonymity.
