Access to Finance: Rural-Owned Businesses

Access to Finance: Rural-Owned Businesses

A recent study by the University of Montana’s Rural Entrepreneurship and Leadership Co-Lab (REAL Co-Lab), in collaboration with Catalyze Global Impact LLC and Accelerate Montana, highlights financial challenges and opportunities for rural women and Native business owners. 

Key Findings:

• Financial Product Usage: Rural business owners access financial products like business checking accounts, loans, and credit cards at rates similar to urban business owners. Notably, rural businesses access grants at higher rates, particularly Native-owned businesses utilizing programs like the Indian Equity Fund. 
• Challenges for Rural Lenders: Many rural funding institutions face capital shortage, limiting their ability to meet demand. Smaller lenders often prioritize long-term clients, leaving less capital for new businesses. 
• Geographic Disparities: Urban areas host the majority of funding institutions, while rural regions often lack variety. Native reservation, apart from the Flathead Reservation, have fewer financial resources. 

Recommendations for Improving Access to Finance:

1. Increased trainings and resources for lenders and investors.
2. Expand awareness of training, technical assistance, and funding opportunities for small businesses.
3. Strengthen funders’ capacity to operate at the community level.
4. Develop shared services for lenders to address resource gaps.

USDA Rural Development Program:

The USDA has invested 2.8 billion in Montana through loans and grants for rural businesses over the last decade. Programs like the Intermediary Relending Program and Rural Micro-entrepreneur Assistance Program support small business by providing direct funding or backing lenders.

Perspectives from Rural Finance Experts:

• Community Development Financial Institutions (CDFIs) are vital for rural small business funding but are often constrained by limited capital.
• Smaller rural banks struggle to balance agriculture and commercial lending due to resource constraints.
• Nonprofit revolving loan funds can fill the gap, ensuring capital availability for rural start ups and expansions. 

While rural businesses face unique challenges in accessing capital, initiatives, and recommendations from the study aim to bolster financial resources and create a more equitable funding landscape. 

To read the full report, click here.