On Christmas Day, the Wall Street Journal published an article examining the loss of financial services in rural communities, and the impact that has on local businesses and the economy. The article spotlights North Carolina, and the challenges many of our rural areas have faced particularly as bank branches have closed down.
The article begins by highlighting the story of one of our borrowers, Danielle Baker, owner of Bakers’ Southern Traditions Peanuts Inc. When it had come time to expand her business, Danielle could not get a loan from her local bank, even though she had a relationship with the bank branch. As we have discussed many times, banks have pulled away from small-dollar business loans, particularly since the Great Recession.
Danielle was eventually able to get a loan from Carolina Small Business, but as the article mentioned, she still has to drive 19 miles to bank branch for other banking services.
This is just one of many examples in the article of the hardships small business owners in rural areas face when they try to access capital. The small business lending market has changed in fundamental ways, hampering the ability of rural communities to retain their existing businesses or create new ones. Also, the loss of bank branches in rural areas makes accessing any financial services challenging for business owners.
The article does a very good job of illustrating the cyclical nature of these challenges. On the one hand, banks invest their resources where there are customers and where there is demand. As rural areas lose population and struggle with a host of economic challenges, they become less viable places for a full bank branch. When branches close, not only are financial services lost, but communities lose the relationships with local bankers that may have been built over the years.
On the other hand, as banks recede from these areas, it makes doing business in rural areas much harder. Business owners have to invest significant time and energy driving to and from far-away bank branches to conduct routine banking activities. Accessing loans to invest capital into their businesses becomes more difficult too. As a result, businesses close down or move, which reinforces the lack of demand that banks are up against.
For Carolina Small Business, the critical factors in filling this gap are 1) establishing a local presence and 2) relying on partnerships. Throughout 2016 and 2017, we put boots on the ground in Greenville, Fayetteville, Wilmington, and Rocky Mount. Having our staff in the communities helps us to reestablish those local relationships with business owners and community leaders that are important links in local economies.
We also work very closely with our partners, including banks, business service providers, and community organizations. Banks are an important source of referrals for us, as they will direct clients to us who they are unable to serve. They also make significant investments in us, and other CDFIs around the country, in order to expand access to capital in markets that they do not serve. We also work with our bank partners, business services providers,and community organizations to provide training and workshops to business owners.
The “economic ills” of rural communities described in the article make any effort toward revitalization an uphill climb. Financial services are just one piece of the puzzle needed for viable local economies, and it takes a concerted effort with many committed players working together to fill the gap. Loan by loan, and business by business, we hope that we can bring a spark of investment back into these communities.