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Hartland, VT – Disparities in access to capital are stifling innovation in rural communities and widening economic gaps between rural and urban areas, according to new research from the Center on Rural Innovation (CORI). Rural America’s Struggle to Access Private Capital, sponsored by the Robert Wood Johnson Foundation, underscores the significant financial obstacles rural entrepreneurs face when launching and growing innovative businesses. 

Despite demonstrating strong entrepreneurial potential, with high rates of self-employment, a growing number of non-employer firms, and higher-than-average business survival rates, rural businesses continue to be left behind in the flow of private capital.

While rural businesses make up 12% of all U.S. firms, they receive less than 1% of all venture capital funding. Today, more than 98% of venture capital flows to metropolitan counties, with over half going to just five major urban areas. 

“Venture capital is a critical driver of innovation and high-growth startups, but the data shows rural entrepreneurs are largely excluded from this essential funding network,” said Dr. Amanda Weinstein, Director of Research, Knowledge, and Evaluation at CORI. “This imbalance limits the potential of rural communities and exacerbates economic inequality between urban and rural areas.”

Like their urban counterparts, rural entrepreneurs often rely on personal savings for startup capital, however with lower median household incomes and home values, using personal wealth as a financial tool is limited. Traditional small business loans from banks are another important tool for stable, incremental growth. However, since 1994, the number of rural community banks has dropped nearly 48%, diminishing access to relationship-based lending crucial for small businesses.

To address these challenges, CORI recommends targeted policy and investment strategies, including:

  • Strengthen and expand rural community banks to support relationship-based lending for local businesses, as the purely quantitative credit decisions employed by large, centralized banks often exclude rural small business borrowers.
  • Increase access to venture capital in rural areas through targeted regional investment funds, angel networks, and public-private financing partnerships in rural areas.
  • Better align or expand government financing programs to prioritize rural entrepreneurs, similar to the USDA Rural Business Investment Program’s focus on rural areas.

“This is a critical moment to understand the capital landscape in rural America and reimagine what is possible,” said CORI Executive Director Matt Dunne. “With the right policies and investments, we can unlock the innovative potential of rural entrepreneurs and ensure they are full participants in our national economy.”

 

To read the full report and explore CORI’s recommendations, visit https://ruralinnovation.us/resources/reports/rural-americas-struggle-to-access-private-capital/