In Maine, a kelp company received a loan for a greenhouse so it can dry its seaweed year-round. The family-owned business grows and harvests seaweed and mussels, uses reusable and compostable materials for their packaging, and provides employment in a small coastal community.
In East Kentucky, a housing nonprofit received a repayable grant for purchasing land. The completed homes will be affordable, efficient, and safe for those impacted by severe flooding in a region with a deficit of new construction.
Across the country, rural communities are benefitting from these kinds of impact investing. Traditional investing prioritizes financial returns, with less consideration for social returns. Impact investing flips that focus and puts community development first. Organizations that embrace it typically take on worthy funding projects that banks won’t or aren’t able to.
“Investment can be extractive, and has been in rural places,” explained funder Andrew Crosson. “But it is a tool that can be used for good as well, to build local wealth and fund community priorities.”
Impact investments focus on Main Street, not Wall Street, and build businesses that are sustainable and responsive. Organizations that practice impact investing intentionally prioritize community needs, like well-paying jobs.
“Traditional capital markets don’t have the products that rural main street entrepreneurs need,” said investment professional Scott Marquardt, listing essential services like child care, car repair, and grocery stores. “Critical community needs warrant mission-driven capital.”
When explaining the basis of these kinds of investment relationships, impact investors often use terminology that is not in the business mainstream: trust, dignity, collaboration. In other words, the kinds of neighborly interactions that used to be typical in rural places. When working with both investors and entrepreneurs, investment professional Geoff Marietta said, “Trust is huge; that is the glue.”
That foundation is part of what offsets the financial risks. Lenders also pair their investments with a high level of technical business support, like market research, development of manufacturing plans, and sales assistance. While prioritizing needed projects, these organizations follow basic economic rules.
“Building a trusting relationship with a potential borrower based on respect doesn’t mean that we can forego the due diligence required to vet a loan or venture capital investment,” said impact investor Betsy Biemann. “We are counting on the payback to keep our operation running and either pay back our impact investor or recycle that capital for the next entrepreneur.”
Impact investors are nimble and flexible, using a variety of organizational structures and offering a broad range of investment vehicles to meet diverse capital needs: traditional loans, bridge loans, equity investments, grants, venture capital funds, zero interest loans, tax credit investments, micro loans, and Opportunity Zone real estate investments.
Why It Is Needed
Chronically, rural America receives a lower-than-average rate of granting from national foundations. According to the USDA Economic Research Service, the US population was 19% rural in 2010, yet less than 7% of grants went to rural organizations. This philanthropy gap is not because of a lack of need. At the time, 78% of high poverty counties in the nation were rural.
The nation has realized, too, that the traditional economy doesn’t work for everyone. Women, people of color, veterans, immigrants, and people living in poverty are often left out, and being rural presents its own unique challenges. Impact investors can bring equity as they intentionally reach those left behind.
“I am a capitalist, but when the capitalist system is all out of whack, we need corrective measures and not a free market approach,” said Marietta. “When things are broken, you need to fix them.”
One adage often used in the realm of philanthropy is “Money follows money.” When large corporations and financial institutions pull out of a community, they cause a significant trickle-down effect of disinvestment. But the converse is also true; new interest and investment in rural places can create a snow-ball effect of momentum. These four organizations are working to inject needed capital into their communities that in turn will carve the channels for a flow of additional investment.
Coastal Enterprises, Inc.: A Gateway to Good Jobs in the Northeast
Coastal Enterprises, Inc., (CEI) is a Community Development Financial Institution (CDFI) founded in Maine in 1977. It lends to a range of businesses, with a specialty in natural resource-based industries like fishing, food, and clean energy, with the goals of creating good jobs and supporting diverse business ownership.
CEI is one of few CDFI’s that offer venture capital equity investments. Its subsidiary, CEI Ventures, serves rural communities and small gateway cities in the Northeast and arose out of its clients’ need for start-up or high growth capital. CEI has developed a Good Jobs Framework, a seven-point guide for what makes a good quality job — including a living wage, health insurance, and an annual review — because retaining workers with good jobs is better for the employee, the company, and the community. Those practices were adopted by CEI Ventures investment recipient Aqua ViTea, the nation’s first on-tap kombucha company. It has been named one of the best places in Vermont to work.
CEI also has initiatives to combat one of the biggest barriers to quality employment in rural places: access to child care. Its Child Care Business Lab provides a learning lab program for child care providers and enterprise lending for the sector. Each cohort learns to develop certification plans, connects to mentors, and gains access to capital. Thanks to support from the Lumina Foundation, the lab, which began in rural counties, has now expanded across the state and is laying the groundwork to export the program more broadly.
“This impact investor expanded our capacity to cultivate and finance new cohorts of child care providers,” explained CEO Betsy Biemann. “We believe, while it is challenging for small companies to be successful, running one’s own business offers economic agency that is appealing to a lot of people.”
Southwest Initiative Foundation: Diverse Entrepreneurs in the Midwest
Southwest Initiative Foundation (SWIF) is one of six independent rural community foundations established by Minnesota’s McKnight Foundation in the 1980s, essentially creating a statewide investment infrastructure. SWIF covers 18 counties and two Native Nations.
Among the small communities in the region is Worthington, pop. 13,000, one of the most racially diverse places in the state. Families in the school district speak thirty-three different languages. SWIF is involved in the Welcoming Communities movement to embrace local diversity and is actively investing in Latin American, Somali, Karen, and Hmong entrepreneurs.
The region’s immigrant population, one of the most marginalized, has some unique challenges. SWIF has developed culturally-sensitive business development and technical assistance programs. One of its partners is Rising Tide Capital in Jersey City, NJ. Together, they created a training program that meets the needs of both urban and rural immigrant entrepreneurs.
In 2016, SWIF identified children as the single focus for their work, and their access to opportunity as the measuring stick. “We ask ourselves if we are reaching people who need capital the most,” said President Scott Marquardt. “Our goal is to put it into the hands of people whose dreams align with our vision for economic mobility in our region.”
Appalachian Impact Fund: Stacking Capital and Celebrating Defaults in East Kentucky
In 2017, a high-net-worth individual approached the Foundation for Appalachian Kentucky about launching an impact investment fund to support East Kentucky community needs. The Appalachian Impact Fund (AIF) creatively utilizes a mix of grants and below-market investments to make a difference in one of the highest poverty areas in the U.S.
One of AIF’s strategies is to help businesses stack capital. If the Fund supplies a zero interest, five-year loan of $20,000, the business can use that $20,000 as the down payment for a traditional bank loan. “In terms of equity and wealth building in areas of persistent poverty, that $20,000 is really important to reach those not from high wealth backgrounds,” said fund director Geoff Marietta.
The Art Station in Hazard renovated a dilapidated downtown building thanks to a mix of grants and zero-interest loans from AIF. Partners were able to stack traditional banking capital on top of that foundation. The building houses the offices of the Appalachian Arts Alliance and is used for community arts programming, music performances, and as a wedding venue. It is a new, thriving hub of community and economic activity.
In East Kentucky, entrepreneurs who benefit from AIF funds don’t have a lot of other options. They could wait for five years while they slowly build up savings, or they could fall into predatory lending and its 36% a year interest rate. That’s why Marietta doesn’t see the fund’s 15% default rate as a failure. “Funders should be celebrating defaults,” he said. “Without them, they are not truly doing impact investing.”
Invest Appalachia: Accelerating Regional Solutions Across Six States
Appalachia has an even greater philanthropy gap than the rural average. As recently as 2014, grantmaking in Appalachia was only 10% of the national rate per capita. Newly launched Invest Appalachia (IA) is the result of a six-year conversation in the region about why communities were not receiving impact investment funds. Fifty regional partners developed a collaborative vision for what the region needed to attract more national funders.
Serving counties in six central Appalachian states, IA works by design to support, not supplant, local efforts. Leaders identified a major need to attract large-scale investors that weren’t currently involved in the region. As a result, IA only seeks opportunities with more than a million dollars in funding. IA just announced a $19 million launch of the Invest Appalachia Fund, and 90% of this first significant investment is new funding to the region.
In the first round of capital funding, IA prioritized long-term flood recovery in East Kentucky and BIPOC-led projects. One technical assistance grant will support social enterprise development supporting Black-owned businesses in West Virginia. Another will facilitate creation of a Cherokee cultural district in downtown Franklin, North Carolina, centered around Noquisiyi Mound, site of an ancient town.
Artist rendering of the proposed learning center in the Noquisiyi Cultural District (Image Credit: Invest Appalachia). 
Site Plan for a Cherokee cultural district built around Noquisiyi Mound, site of an ancient city. The development in present day Franklin, NC, is supported by Invest Appalachia (Image Credit: Invest Appalachia).
CEO Andrew Crosson is excited about finally deploying funds. “Doing something new requires slow progress and difficult conversations,” he said. “What makes us unique is our bottom-up approach designed by people in the region. We built the solution and then must get the money to fund it. We hope people will pay more attention to the region.”
All these leaders are advocates for underserved rural businesses and see the folks in their service regions as capable, innovative, and relevant. They see investing in rural places as an opportunity to make a big financial and social impact.
“We are having an historic deployment of funds,” said SWIF’s Marquardt. “Coming out of the pandemic, people believe that their dreams can finally happen.”
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