Extending Credit to Rural America

One thing you learn in business school is corporate finance. There are a few ways to finance your operations.

• Cash flow
• Debt
• Selling equity

Growing from cash flow is hard.  It’s generally slower.  If you can access credit markets, debt is good but can be a double-edged sword if you can’t meet the debt payments.  Selling equity is an expensive form of finance because while you might not owe your investors a periodic dividend, you do owe them an exit.  They are going to keep an eye on you as you build to the exit.

For a lot of businesses in America, there is no access to debt or selling equity.  Online platforms haven’t gotten there yet.  Sure, there are crowdfunded businesses.  But, all those kinds of businesses are software businesses that are selling equity or convertible debt to scale and build a blow out company.

If you are a mom and pop type business, finding credit is difficult if you aren’t near a major metropolitan area.

Dodd-Frank absolutely crushed community banking.  The regulations are far too expensive for small banks to adhere to.  They were swallowed up by larger banks, who closed branches and specialized.  It’s just too expensive for a larger bank to write smaller checks.  Sort of like a Billion dollar venture fund doing all the diligence and assuming risk to write a $100k check.  Just not worth the time.

This last presidential election laid bare the divide between rural and urban areas. “Hillbilly Elegy” became a best selling book and on the back of it, Mr. Vance raised a VC fund with Steve Case.  Great for them but we are still stuck with Dodd-Frank and a lot of really bad regulation.

This article in the Wall Street Journal nails it.  It starts out,

Danielle Baker wanted a $324,000 loan last year to expand the peanut-processing business she ran from the family farm. She had a longstanding relationship with the Roxobel branch of Southern Bank, and she thought Southern would help fund the peanut operation she had spun off, too.

But that branch—the town’s only bank—closed in 2014. A Southern banker based in Ahoskie, 19 miles away, said Bakers’ Southern Traditions Peanuts Inc. was too small and specialized, she says. A PNC bank branch also turned her down.

“If you are not a big company with tons of assets and a big bank account,” Ms. Baker says, “they just overlook you.

We like to make Mr. Potter of “It’s a Wonderful Life” out to be a villain. Truth of the matter is a vibrant community banking system is healthy and necessary for the survival of America.