Small Businesses Are Driving Economic Vitality in Appalachia, Though are Struggling to Access Needed Capital
New Report Developed by Next Street and Funded by the Appalachian Regional Commission Highlights Challenges, Offers Solutions to Help Region Pursue Billions in Untapped Growth
In a new report issued today by the Appalachian Regional Commission (ARC), small businesses are credited with driving economic and cultural vitality across the Appalachian region. Main Street business in sectors such as retail, leisure and hospitality employ nearly half of Appalachia’s workforce. Additionally, emerging potential in high-growth and supplier small businesses hold promise for rural communities to tap into significant private and public investment in infrastructure and green energy
Despite this growth, significant barriers exist for these businesses to access the capital and credit they need to survive, impeding their success and, in many cases, their survival. In the report, solutions are proposed to reduce these barriers and improve capital flow to these businesses. Produced by Next Street, a mission-based B Corp firm focused on uplifting small businesses, Access to Capital and Credit for Entrepreneurs and Small Businesses Across Appalachia (add link) proposes solutions to reduce these barriers and improve capital flow to businesses.
Through an in-depth analysis by Next Street’s team of small business experts, the report concludes that the Appalachian region has the potential to leverage the resilience and entrepreneurial spirit of small businesses, which in 2020 made up 99% of the businesses in the region. However, this potential is impeded by a gap between capital supply and demand, geographic constraints, and limited and inconsistent information. To unlock the full economic and cultural vitality of the region’s small business economy, the report urges that stakeholders come together and take strategic action.
“I’m encouraged by the progress Appalachian entrepreneurs have made in recent years when it comes to opening and sustaining new businesses across the region,” said ARC Federal Co-Chair Gayle Manchin. “However, for small businesses to continue and strengthen the local economy, it is imperative that we better understand the unique challenges faced by our Appalachian business owners and take action to meet those challenges head-on.”
Next Street Co-CEO Michael Roth said, “As champions for supporting underserved small businesses, we are very much aligned with this initiative to look more closely into the sometimes-underestimated Appalachian small business sector. The report’s findings and recommendations, derived from our thorough research and analysis, will inform future policies and decisions that will positively impact the vibrant Appalachian small business community and the entire region.”
Key Study Findings
The study revealed a number of challenges and opportunities that small businesses face in Appalachia. These findings include:
- Unmet capital demand from small businesses represents a $70 billion growth opportunity in Appalachia.
- Banks provided 97 percent of the total dollars lent to small businesses from 2017-2021. However, bank consolidation and branch closures are inhibiting local access to capital.
- The most prevalent loan sizes do not always meet the needs of Appalachian small businesses. What’s more, credit requirements such as collateral create barriers for these businesses to access loan capital.
- The emerging growth potential in the climate, infrastructure and advanced manufacturing industries give Appalachian businesses the chance to tap into national infrastructure and clean energy trends. Yet, the capital challenges these businesses face limit the opportunities for them to seize these opportunities.
- Increasing the ability of regional and community lenders to access capital is critically important. These organizations are more able to meet the unique loan needs of Appalachian small businesses, which are sometimes less resourced than traditional loan applicants.
- Encouraging and designing coordinated programs for investors, developers, and entrepreneurs to address emerging industries’ challenges can mobilize marketplaces throughout Appalachia and spur innovation.
Methodology
The report’s findings were made possible through the analysis of a large number of publicly available datasets, including those from the U.S. Census Bureau and Federal Reserve System. Additionally, the research team had in-depth conversations with more than 25 organizations (add link) working throughout the region, which provided local perspective and on-the-ground insights. Nineteen of those organizations have used, or are currently using, ARC funding to address the gaps in capital access.