In the second installment of our Appalachian Small Business Series, we discuss economics and financing opportunities in the region.
We decided to focus on the availability of capital and related economic topics early in this newsletter series because they're critical elements for revitalizing Appalachia. Access to small business financing is necessary for entrepreneurial activity, and without cash, firms can't survive long enough to implement our other ideas. With a strong financial foundation, though, companies can focus on 21st century growth strategies.
Before diving into our small business recommendations, let's take a look at the state of small business financing in Appalachia. Perhaps not surprisingly, there's limited data on this subject as more researchers focus on rural economics in developing nations than on Appalachia. Anyway, some of the only available research on our topic comes from a National Community Reinvestment Coalition (2007) report. The study offers these important points:
- Small and mid-sized banks in Appalachia are especially small business-friendly. Branches of large banks tend to be less devoted to small business.
- The most economically-distressed counties in Appalachia suffer from insufficient access to business capital, especially for companies early in their development.
- An overall lack of non-bank financing opportunities restrains small businesses across Appalachia.
- Entrepreneurs in Appalachia need additional financial guidance and training to succeed.
How should small businesses in Appalachia respond to these facts?
Just because many counties in Appalachia have limited ties to the banking sector doesn't imply that small businesses should ignore this traditional source of capital. In fact, the fewer the banks in a community, the more important it is to be well-prepared for an application for a loan. (You can't afford to fail!) It's absolutely essential to create a detailed business plan for new ventures, including realistic financial forecasts. Banks won't lend money to entrepreneurs without a clear understanding of the business. Existing firms seeking additional financing will need revenue, profit and cash flow predictions, too. The SBA and SCORE are two sources of guidance for business plans and small business forecasting. Contact them for free advice! Forward View, of course, can also create the financial analyses required for loans and other forms of start-up financing.
One new source of business financing that's underappreciated in Appalachia is crowd-funding. No, we're not talking about some type of charity fundraiser; we're talking about a 21st century alternative to banks, private equity and venture capital firms. EquityNet, Crowdfunder and MicroVentures are just a few of the companies that help connect entrepreneurs directly to investors. Crowd-funding bypasses lending institutions and serves as a new route for businesses in Appalachia (and elsewhere) to receive capital from across the nation. We believe that crowd-funding can absolutely help to bridge Appalachia's financing gap.
In the next issue of this newsletter series, we'll discuss industry and tourism in Appalachia and its relationship to small business. We look forward to presenting our research and ideas. Stay tuned!
Reference: National Community Reinvestment Coalition. (2007). Access to Capital and Credit For Small Businesses in Appalachia. Retrieved from the Appalachian Regional Commission: