Rural businesses need more investment capital, says founder of Rural Opportunity Initiative at Georgetown Univ.

Matthew McKenna

Though many think of agriculture when they think of rural communities, that only makes up 6 percent of today's rural economy. Small businesses are critical to rural economies, but they need more venture capital to succeed, according to an op-ed in The Hill by Matthew McKenna, the founder and executive in residence of the Rural Opportunity Initiative at the business school at Georgetown University in Washington, D.C.

"One way of addressing the issue of scale that is often a limiting factor for rural investment is the development of funds that target mid-tier investments. The recent wave of Rural Business Investment Companies (RBICs) is a good example," McKenna writes. "Their charters limit their investments to rural-based businesses and their typical investment slice has been in the $1-5-million range. Another tool is a fund of funds approach, where many small funds are brought together by institutions as way of allowing their customers to obtain the diversity and scale that is denied them in more targeted funds."

The federal government can also help by removing some obstacles to rural small business investments and contribute funds for RBICs. The Opportunity Zones program in last year's tax bills could also help; it's designed to bring investment and development to blighted areas, and about 23 percent of such state-designated Opportunity Zones are in rural America. The Senate version of the Farm Bill and the bipartisan Rural Jobs and Investment Act of 2018 also have provisions that expand opportunities for RBICs and Rural Innovation Centers, McKenna writes.

But though federal support is important, McKenna believes the primary source of investment for rural businesses will come from the private sector. "We know those dollars are available — $57 Billion in the first half of 2018 alone — but the challenge is how to change the direction of those investments toward sectors of the economy and geographies where venture capital has not been well represented," McKenna writes. "That is ultimately a challenge of building awareness of those investment opportunities and connecting those opportunities with investors ready and willing to make investments as they become available."

If rural small businesses don't have more access to capital in the future, McKenna warns, rural America will continue to lag behind the rest of the nation's prosperity.