Rural Capital Study Group

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Rural Capital Study Group
Statement of Findings August 30, 1999
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From February through June 1999,
representatives of multi-level public and private
sectors convened to explore the availability of
rural capital for existing and emerging economic
activity in rural Wisconsin.
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The rural business community presents
unique challenges for credit and financial
service providers to micro-business and
agricultural enterprise.
Five Broad Categories describe the
challenges 1. Sources and Availability 2.
Quality of Projects 3. Government Programs 4.
Technical Expertise 5. Regulation
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Sources and Availability
Although financing for agriculture and small
business enterprise is generally available
through a variety of programs, cost
effectiveness and market volatility reduce
access...
5
Sources and Availability
Rural businesses have limited choices for
financial services. Conventional loans for
micro-business (under 25,000) are generally
not administratively cost effective for lending
institutions. Credit cards have become a
source, but are often misused...
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Sources and Availability
Market factors, which help determine the
viability of financing for business
enterprises,are volatile and affect the
stability of both the business and the lending
institution. Changes in bank ownership and
decision-making authority affect the lending in
small communities.
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Quality of Projects
How to access capital
Lending process
How to capitalize projects
How to use equity
A gap exists in borrowers understanding of
how to prepare for and enter the lending process,
how to access capital, how to use equity, and
how to capitalize projects, among other
technical knowledge.
8
Quality of Projects
Disappearing!
Lending to business operations is increasingly
based on scale or size, which may diminish the
viability of many small and medium-sized
operations.
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Quality of Projects
Variables outside of the business control
affect the ability to make stable, long-term,
business projections.
For example 1. Competition 2. Commodity
pricing 3. Land valuation 4. Environmental
regulations
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Quality of Projects
Rural areas often suffer from the perception of
being dependent on resource-based industries,
which places them at a disadvantage in
attracting other types of industry.
11
Government Programs
Rural lending institutions knowledge, use of,
and access to government programs
varies. Frequent program changes make it
difficult for small lending institutions and
borrowers to stay current.
12
Government Programs
Government agencies ability to prepare and
disseminate timely information to penetrate
rural markets is a continual challenge, although
use of the Internet can offer a unique solution
to this problem. There is a need to promote
greater access to and use of the Internet as a
business tool.
13
Government Programs
Criteria and measurements of success for
government lending (e.g., number of jobs
created) need to be updated to reflect the
current economy. Many rural business and
community infrastructure facilities are aging
and deteriorating.
14
Government Programs
Public decision makers and agencies can play a
stronger role in identifying and promoting
government partnerships to help upgrade or
replace these facilities. Shortage of funding
for direct lending programs increases the
challenges for entrepreneurs, particularly
beginning farmers.
15
Technical Expertise
Agriculture lending is more often a specialty
among small and rural lenders than other types
of business lending. Lower volume places small
and rural lenders at a disadvantage to track the
wide variety of risk factors and indicators for
success among diverse business types.
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Technical Expertise
As more credit sources appear, borrower
understanding of financial options is waning.
Third-party specialists and consultants are
increasingly being employed to assist with
financial packaging for agriculture and
non-agriculture business.
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Technical Expertise
Technical expertise in business management for
entrepreneurs and farmers is inadequate.
Although technical colleges and others offer
business and agri-business development
educational opportunities, they are not
necessarily utilized by those borrowers who may
need them the most.
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Regulation
Financial regulation assures the ability of
lending institutions to provide credit within
safety and soundness parameters.
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Regulation
Lending policies, however, vary from institution
to institution, based on the expertise of the
lending staff and the complexity of the credit
transaction. Some financial institutions may not
consider it cost effective to make a limited
number of loans that require specialized training.
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Regulation
Other kinds of regulations (local zoning
restrictions, land use) result in varied
application of government finance programs.
-end-
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Wisconsin Rural Partners, Inc. thanks the
following groups who participated in this study

• Wisconsin Department of Financial Institutions
• U.S. Small Business Administration
• Wisconsin Department of Agriculture, Trade and
  Consumer Protection
• Wisconsin Business Innovation Council
• Community Bankers of Wisconsin
• North Central Wisconsin Regional Planning
  Commission
• Wisconsin Federation of Cooperatives
• Wisconsin Womens Business Initiative Corporation
• Federal Reserve Bank of Chicago
• Office of the Governor
• Wisconsin Housing and Economic Authority

• Wisconsin Credit Union League
• Wisconsin Department of Commerce
• First National Bank of Platteville
• Wisconsin Bankers Association
• Antigo Coop Credit Union
• UW-Extension Center for Community Economic
  Development
• Western Dairyland Economic Opportunity Council
• National Federation of Independent Business-WI
• City of Antigo
• Wisconsin Milk Marketing Board
• Wisconsin Business Development Finance
  Corporation
• Agribusiness Council