A triple hurdle model of US commercial bank use of guaranteed operating loans and interest assistance Bruce L. Ahrendsen and Bruce L. Dixon Division of Agriculture, University of Arkansas, Fayetteville, Arkansas, USA Latisha A. Settlage College of Business, University of Arkansas at Fort Smith, Fort Smith, Arkansas, USA Steven R. Koenig Farm Credit Administration, McLean, Virginia, USA, and Charles B. Dodson Farm Service Agency, US Department of Agriculture, Washington, DC, USA Abstract Purpose – The purpose of this paper is to estimate a three-equation model of US commercial bank usage of the Farm Service Agency’s (FSA) guaranteed operating loan and interest assistance programs. Also, to identify the key farm and banking variables that affect the decision to use loan guarantees and the volume of loans with interest assistance. Design/methodology/approach – A triple hurdle, three-equation system is estimated to model three decisions: to participate in the FSA operating loan program; whether to use interest assistance given the decision to participate in the operating loan program; and then the degree of participation in the interest assistance program. Statistical selection is modeled. Data on almost all commercial banks in the USA from 1995 to 2003 are used in the estimation sample. Findings – Statistical selection is statistically significant so selection must be included in the models. Variables reflecting state-level characteristics such as farm debt servicing ratio, individual bank loan-to-asset ratio, bank size and the general guaranteed loan and interest assistance environment are significant in all three equations. Intensity of interest assistance use varies markedly across states. Originality/value – The interest assistance program has high subsidy costs and is an important source of support for financially marginal farmers. Scant prior research has investigated this program. The present study also shows that modeling interest assistance usage must be embedded in a larger model to give a complete specification. Keywords United States of America, Loans, Commercial banks, Guaranteed operating loan, Interest assistance, Triple hurdle model, Selection Paper type Research paper The current issue and full text archive of this journal is available at www.emeraldinsight.com/0002-1466.htm This material is based upon work partially supported by the Economic Research Service, US Department of Agriculture, under Agreement No. 43-3AEL-2-80068. The views expressed herein are those of the authors and do not necessarily reflect the views of the University of Arkansas, Division of Agriculture; University of Arkansas, Fort Smith; Farm Credit Administration; or the US Department of Agriculture. AFR 71,3 310 Agricultural Finance Review Vol. 71 No. 3, 2011 pp. 310-328 q Emerald Group Publishing Limited 0002-1466 DOI 10.1108/00021461111177594