https://www.americancityandcounty.com/wp-content/themes/acc_child/assets/images/logo/footer-logo.png
  • Home
  • Co-op Solutions
  • Hybrid Work
  • Commentaries
  • News
  • In-Depth
  • Multimedia
    • Back
    • Podcast
  • Resources & Events
    • Back
    • Resources
    • Webinars
    • White Papers
    • IWCE 2022
    • How to Contribute
    • Municipal Cost Index – Archive
    • Equipment Watch Page
    • American City & County Awards
  • About Us
    • Back
    • About Us
    • Contact Us
    • Advertise
    • Privacy Statement
    • Terms of Service
American City and County
  • NEWSLETTER
  • Home
  • Co-op Solutions
  • Hybrid Work
  • Commentaries
  • News
  • In-Depth
  • Multimedia
    • Back
    • Podcasts
  • Resources/Events
    • Back
    • Webinars
    • White Papers/eBooks
    • IWCE 2022
    • How to Contribute
    • American City & County Awards
    • Municipal Cost Index
    • Equipment Watch Page
  • About Us
    • Back
    • About Us
    • Contact Us
    • Advertise
    • Cookie Policy
    • Privacy Stament
    • Terms of Service
  • newsletter
  • Administration
  • Economy & Finance
  • Procurement
  • Public Safety
  • Public Works & Utilities
  • Smart Cities & Technology
  • Magazine
acc.com


Capital needed for rural development

Capital needed for rural development

Small towns across America are losing business because existing and potential businesses cannot obtain financing for startup and expansion."Potential
  • Written by Silverstein, Kenneth
  • 1st June 1996

Small towns across America are losing business because existing and potential businesses cannot obtain financing for startup and expansion.

“Potential employers cannot expand because of their inability to qualify and/or secure credit in amounts sufficient to meet their needs,” says Bastrop, La., Mayor Clarence Hawkins. “Long-term, fixed-interest credit must be made available to revitalize these [rural] areas if they are to remain viable.”

Rural towns do not need to grow at 2.1 percent like they did in the 1970s. They merely need to keep pace. But since those halcyon days, growth has been meager: 1 percent in the 1980s and 1.5 percent through 1993 – rates that are now falling, according to the Federal Reserve Board. Most of the present gains are going to tourist towns and areas with some connection to nearby big cities.

The weak growth in rural loans is used as evidence to suggest there is a correlation between lack of capital and the slowing rural economy. Studies show that when loans to rural areas increase, employment figures jump; consequently, when they fall off, so do job opportunities.

The message: Innovative ways to extend more credit must be found. That will solve at least some of the problems of rural America. Still, that is not the only answer. “It is likely that many factors, including fundamental changes in the industries important to rural America lie behind those trends,” says Mark Drabenstott, an economist at the Federal Reserve Bank of Kansas City in Missouri.

The long legacy of policy initiatives in the agricultural credit market are useful here, Drabenstott says.

Chartering new institutions to extend credit is efficient and effective, he says, while expanding credit through direct government loans or subsidies is often costly and bureaucracy-intensive.

The Farm Credit System, for instance, competes with commercial banks and life insurance companies to give farm borrowers more alternatives at cheaper interest rates. The credit system could be broadened to include some types of rural business loans, according to Drabenstott.

This approach would be inexpensive to taxpayers because the federal government would play the role of catalyst while building on existing market institutions.

Another idea, says Jeff Plagge, president of the First National Bank of Waverly, iowa, would be to provide rural areas with access to secondary markets. Such markets allow lenders to pool certain types of loans and sell off pieces of those loans to investors. That is how the mortgage industry expands financing to homeowners and decreases risk to shareholders.

But mortgage-backed securities are unique because they are backed by at least 200 different loans of not more than $100,000 each. Thus, investor principal is rarely at risk. Business loans, conversely, might run as high as $5 million, a substantial risk in any loan pool. Community bankers say that risk could be overcome by requiring larger pools and investment-grade ratings.

While the challenge facing both the public and private sector remains finding new ways to bring more start-up capital and long-term financing to meet the needs of rural America, one thing is worth noting, says Ron Shaffer, a community development economist at the University of Wisconsin. “I’m not aware of any financial institution that has failed in the past 30 years because it has invested too much in local small business,” he says.

That, of course, cannot be said of banks whose portfolios consisted largely of credit extended for commercial office buildings and certain foreign governments.

Tags:

Most Recent


  • citizen experience
    Centering the citizen experience through digital transformations in government
    Technology as it intersects with the citizen experience at its best goes unnoticed, and at its worst betrays a failing on the part of the government to effectively anticipate the needs of its people. In every city there are thousands of nodes through which a citizen population interacts with their government, and some of those […]
  • Nevada police department, medical school, partner to train officers in emergency first aid
    Amid the disturbing rise of mass shootings over the last few decades (most recently, the tragedy in Highland Park, Ill. over the holiday weekend), police and law enforcement organizations across the United States—regardless of size—are at the front line of defense. Standard operating procedures and training norms have likewise evolved to meet the modern day […]
  • Supreme Court ruling on EPA greenhouse gas regulation will impact cities
    On Thursday, the U.S. Supreme Court handcuffed the Environmental Protection Agency (EPA)’s regulation power by ruling that the federal government cannot use the 1970 Clean Air Act to restrict greenhouse gas emissions from power plants. By a 6-3 decision, the decision is notable for city and county administrators because greenhouse gas emissions aren’t contained within […]
  • sustainability
    Sustainability initiatives take center stage in Florida county
    Palm Beach County, Fla. (2022 estimated population: 1,538,450), is the second largest county in Florida by land area and the third largest by population. County leaders have been implementing resiliency and sustainability initiatives for more than a decade, says Melissa McKinlay, commissioner of Palm Beach County District 6. “However, a few years ago, the Board […]

Leave a comment Cancel reply

-or-

Log in with your American City and County account

Alternatively, post a comment by completing the form below:

Your email address will not be published. Required fields are marked *

Related Content

  • VCPWA Water and Sanitation to install money-saving battery energy storage system
  • NACTO announces 10 winners of Streets for Pandemic Response and Recovery grants
  • Why state and local governments need to future-proof their sales tax processes with technology
  • ASCE releases new manual to plan and design for hazards

White papers


How to Assemble a Rockstar Website Redesign Steering Committee

7th June 2022

Hand Hygiene: Compliance Matters

23rd May 2022

What it Takes to Build a Winning Esports Program

23rd May 2022
view all

Events


PODCAST


Young Leaders Episode 4 – Cyril Jefferson – City Councilman, High Point, North Carolina

13th October 2020

Young Leaders Episode 3 – Shannon Hardin – City Council President, Columbus, Ohio

27th July 2020

Young Leaders Episode 2 – Christian Williams – Development Services Planner, Goodyear, Ariz.

1st July 2020
view all

Twitter


AmerCityCounty

Centering the citizen experience through digital transformations in government dlvr.it/STPSyV

5th July 2022
AmerCityCounty

Nevada police department, medical school, partner to train officers in emergency first aid dlvr.it/STPJ2k

5th July 2022
AmerCityCounty

Supreme Court ruling on EPA greenhouse gas regulation will impact cities dlvr.it/STBwkw

1st July 2022
AmerCityCounty

Sustainability initiatives take center stage in Florida county dlvr.it/STBvwN

1st July 2022
AmerCityCounty

10 best cities for July Fourth celebrations dlvr.it/STBfHt

1st July 2022
AmerCityCounty

The Missing Link in Cloud Security dlvr.it/STBXNL

1st July 2022
AmerCityCounty

Improving Productivity with Employee Engagement | Aug. 4, 2022 at 2 PM ET dlvr.it/STBCD5

1st July 2022
AmerCityCounty

We want to hear from you! Please take this brief survey and let us know how your organization is managing your budg… twitter.com/i/web/status/1…

30th June 2022

Newsletters

Sign up for American City & County’s newsletters to receive regular news and information updates about local governments.

Resale Insights Dashboard

The Resale Insights Dashboard provides model-level data for the entire used equipment market to help you save time and money.

Municipal Cost Index

Updated monthly since 1978, our exclusive Municipal Cost Index shows the effects of inflation on the cost of providing municipal services

Media Kit and Advertising

Want to reach our digital audience? Learn more here.

DISCOVER MORE FROM INFORMA TECH

  • IWCE’s Urgent Communications
  • IWCE Expo

WORKING WITH US

  • About Us
  • Contact Us

FOLLOW American City and County ON SOCIAL

  • Privacy
  • CCPA: “Do Not Sell My Data”
  • Cookies Policy
  • Terms
Copyright © 2022 Informa PLC. Informa PLC is registered in England and Wales with company number 8860726 whose registered and Head office is 5 Howick Place, London, SW1P 1WG.
This website uses cookies, including third party ones, to allow for analysis of how people use our website in order to improve your experience and our services. By continuing to use our website, you agree to the use of such cookies. Click here for more information on our Cookie Policy and Privacy Policy.
X