If you have been following Small Business Administration’s (SBA) releases, I am sure you noticed that rural businesses have been grossly underserved by the big Federal Covid-19 assistance programs.
Like so many other things, if rural communities are going to rebuild their economies post-Covid, we must take our future in our own hands. As my friends in the Black Belt of Alabama like to say – it’s time to “take what we have to make what we need.”
Clearly, these federal responses aren’t providing what rural businesses need.
This isn’t surprising for the Paycheck Protection Program (PPP) since banks administer the PPP for SBA. Big Banks have been systematically disinvesting in rural America for 30 years, even as they buy up small-town banks and close local branches. Rural businesses often go to the back of the line for PPP because they aren’t important enough contributors to bank profits.
Many small banks didn’t have a relationship with the SBA, so they got a late start with PPP. Others lack the capacity to handle the extra workload. They struggle to serve existing customers and cannot serve all those frozen out by bigger institutions.
The other SBA Covid-19 program, Economic Assistance Disaster Loans (EIDL), is foundering. While administered directly by SBA, EIDL is grossly underfunded and has slashed its maximum loan size so much that it is nearly useless for all but the smallest businesses.
It’s too soon to predict how well the new United States Department of Agriculture (USDA) loan-guarantee program will work, but the $1 Billion available won’t go far. Like PPP, they work through a rather small group of partner banks, and it will take a while for additional banks to sign on.
As we reopen our economy, rural businesses will face a cash flow crisis while rebuilding their operations. Even with PPP helping the payroll, rent and utilities, businesses are consuming their cash to survive. Past bills and loans must be paid even if there are no new sales. To reopen, businesses will need more cash to pay employees and suppliers while they wait to be paid by their customers. This “working capital” will be hard to come by.
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Even now, banks are reexamining their working capital loans, to see if borrowers still meet underwriting standards. Bank examiners set the standards, and there are severe consequences for banks that allow riskier loans to remain on their books. Some loans will be called by banks, requiring immediate repayment. Others will not be renewed at the end of their term – usually just one year.
It has never been easy for rural businesses to obtain credit on reasonable terms. Post-Covid-19, new loans will be even harder to get. Much like the old days when most gas stations were closed on Sundays, some firms will sputter to a stop before they find a place to refill the tank. Others will go slow so they get more mileage from their remaining fuel.
What Can We Do About It?
Some rural communities have residents with significant wealth camouflaged behind modest homes, simple lifestyles and sensible wardrobes. With stock and bond values fluctuating wildly and no recovery in sight, we have little to lose and much to gain by investing some of our assets back into our own communities.
There are many ways to do this. Perhaps you can become a silent partner of a struggling local entrepreneur. Not sure how to invest by yourself? You can join with others to create a Social Investment Pool like the one being developed in Appalachian southeast Ohio. Want to help but don’t have a lot to spare? Join with friends to support local business through kiva.org.
The fabric of rural life is woven together when neighbors help each other. Whether through an old-time barn raising, a pancake breakfast fundraiser, or the potluck supper after a funeral, we all join together in times of need and take what we have to make what we need.
There may never be a more critical time to join together to preserve the businesses we rely on for necessities, niceties, and jobs in our communities. Be creative, find a way that works for your community and pitch in. Even a little can do a lot.
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John Molinaro is president & CEO of the Appalachian Partnership Inc. Before joining API, Molinaro was President of APEG for six years, and co-director of the Community Strategies Group at the Aspen Institute in Washington, D.C.
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