Tuesday, June 23, 2009

Tightening credit hurts rural businesses more

Tighter credit has disproportionately affected rural areas because they have a large number of small businesses, according to a report by the Federal Reserve Bank of Kansas City in its quartely publication, The Main Street Economist.

Economist Brian C. Briggeman writes in "Monitoring Credit Conditions in Rural America" that there were severe credit shortages for non-farming businesses in rural America in 2008 and early 2009. A survey by the National Small Business Association found that 41 percent of small business owners said their credit limits had been reduced, and many expect conditions to worsen. Briggeman says revenue can decrease by as much as 45 percent for small business owners who are denied credit.

Federal initiatives like the Farm Service Agency and Small Business Administration, in addition to stimulus funds, are helping rural businesses continue, but loans are often based on number of years experience and net worth. In response, public-private partnerships are becoming more common, especially as demand for agricultural products has recently fallen. Briggeman reports that the rural credit market appears to be improving, but that rural business owners should continue to monitor the global economy. (Read more)

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