The economic essence of credit and its role in the development of bank lending to agricultural business

The constant cycle of agricultural production is successfully achieved regarding to equity and loans. An alternative to private source of funding to the equity of agricultural production is crediting including bank loans which are attracted in order to cover the time gaps between production and receiving benefits during a year due to the seasonality. It is revealed that crediting in the context of modern market economy is a key and vital component of economic development. The positive influence of the loan, its impact on national business entities is assessed as controversial. Some researchers of credit theory and its involvement in the production process substantiate it by the lack of tangible assets necessary to ensure the business continuity. As the interest rate is the basic principle of lending, in their opinion, the financial condition of the borrower becomes unstable and as a result it leads to the bankruptcy. According to other researchers, credits lead to the reduction of manufacturing duration and serve as the main precondition for expanded reproduction and business operation in modern economic situation. It has been found that a loan is an inevitable part of an agricultural business as its involvement is caused not only by the borrower’s financial weakness but also the objectiveness of production and circular flow of funds due to the lack of its own funds which is inappropriate to hold in reserve. It was also determined that the naturalistic and income generating theories developed equally during a long period of evolution. However, having opposite approaches to the essence of crediting, in fact, they are identical as credit systems channel savings into productive investments. Actually, credit itself performs redistributive function in the economy and, at the same time, bank institutions have the function of capital formation. It is proposed that in current economic situation the establishment of credit relations between banks and borrowers is possible only in the context of theoretical justification of the nature of the loan, its role in the reproduction process and implementation at the state level with the aim of reliability lending to agribusiness with scientifically proved supervision in market functioning by a decision-making methods through the implementation of legislative framework in the field of crediting, insurance, taxation, budget policy, aimed at the improving of credit relations, supporting bank institutions and the agrarian sector and as a result it will contribute to overcome the financial crises.