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June 1, 2020 – Travis Hogman describes himself as a “small fish” who competes with “just about everybody.”

The owner of The Lumberyard in rural, far southwestern Wyoming, squares off with regional rivals like BMC West and heavyweights like Amazon, Lowe’s and Home Depot.

“I fight the small-town mentality all the time,” Hogman said. “We’re always fighting every day for every penny that we get.” 

Over the past several months, small rural businessowners like Hogman have been fighting another battle: getting their share of federal coronavirus aid. 

The $2 trillion CARES Act Congress approved in late March funded several Small Business Administration programs. The Paycheck Protection Program distributed more than $349 billion in forgivable loans to small businesses that retain their employees. It was replenished with another $310 billion. The Economic Injury Disaster Loan program provides small businesses up to $10,000 in loan advances that don’t have to be repaid. 

But critics say many rural entrepreneurs have been left out. They say unclear federal guidance has deterred many rural businessowners from applying for help, and that many of them lack the banking relationships necessary to tap the largest pot of federal money: the Paycheck Protection Program.

“The failure of the Paycheck Protection Program to reach rural businesses is the direct result of decades of bank disinvestment from rural communities across the country,” Ines Polonius, CEO of Communities Unlimited, Inc., an Arkansas-based lender that serves small businesses in seven states, told members of a U.S. House subcommittee on small business last month.

Responding to the criticism, the Small Business Administration and Treasury Department late last week announced they would set aside $10 billion in funding for the Paycheck Protection Program to be lent exclusively to Community Development Financial Institutions (CDFIs), which lend to rural, minority and underserved groups.

It’s a step in the right direction, but not all CDFIs are participating in the paycheck program, said Vandell Hampton Jr., president and CEO of True Access Capital, which isn’t participating.

Smaller lenders don’t have the capital to lend and wait to be reimbursed, nor do they have the capacity to quickly process loan applications, Hampton said. Instead, grant money to support such lenders, urban or rural, would have been more effective, he said.

However, others note that some CDFIs target rural businesses, and that the new money will help expand their reach.

May 8 report by the Small Business Administration’s inspector general found that the SBA failed to follow congressional direction to prioritize small businesses in underserved and rural markets in the original paycheck protection lending program.

And because the SBA did not collect demographic data on those borrowers, the agency doesn’t know how much money went to rural, minority and women-owned businesses.

“It was a mess getting that PPP,” Hogman said of the Paycheck Protection Program loan. “I probably spent 80-plus hours trying to get that thing set up and in motion.”

To be sure, states with fewer COVID-19 cases and more community banks received more loans on a per-business basis than more urban states, according a study released May 6 by the Federal Reserve Bank of New York.

But small rural businesses applied for — and received — CARES Act dollars in smaller numbers than urban ones, according to an online survey the National Main Street Center conducted April 24-May 4. Of 631 respondents in 43 states, the vast majority employ fewer than 20 people.

The survey found that in communities of fewer than 50,000 people, 76% of businesses applied, compared with 89% in places with larger populations.

And 45% of small business applications in smaller areas were approved, compared with 59% in larger ones.

“The situation in small towns and in rural America is about as severe as it is in big cities,” said Michael Powe, the report’s co-author and director of research at the National Main Street Center.

Advocates also are calling on Congress to include the U.S. Department of Agriculture’s Rural Microentrepreneur Assistance Program (RMAP) in future relief efforts. About 1,200 small rural businesses receive loans through the program.

The recipients employ 10 or fewer people. Most of the businesses are service-oriented, such as hair salons, restaurants and retail outlets, said Johnathan Hladik, policy director of the Center for Rural Affairs in Lyons, Nebraska.

The Nebraska center and a coalition of small-business lenders are urging Congress to forgive up to $2 million in loan payments for six months, similar to loan relief in another SBA program funded by the CARES Act.

Rural entrepreneurs and businessowners often struggle to obtain loan financing. It took Hogman several years before an RMAP loan provided the financing he needed to purchase his business in Evanston, Wyoming.

“It’s basically the reason that I exist, to put it lightly,” Hogman said. 

‘The Entire Town Feels It’

Employment loss during the early weeks of the pandemic was about 27% among firms with fewer than 100 employees and was concentrated among low-wage workers, according to a May 6 paper from economists at the ADP Research Institute, the Federal Reserve Board and the University of Chicago.

Among private sector employment across the country, small businesses of fewer than 50 employees shed more than 6 million jobs from March to April, according to the April ADP Small Business Report. The service and goods-producing sectors shed the most. The share of jobs lost was even greater in businesses of fewer than 20 employees. 

Those small businesses are especially critical to the rural economy. Operating in places with low population density, small enterprises are credited with keeping profits in the community and building local leadership. Some scholars have found that counties with greater concentrations of small, locally owned businesses even have healthier populations.

“I’ve lived the majority of my life in communities of less than 5,000 people, and when a business closes the entire town feels it,” said Waldo Smith, director of microlending at the Wyoming Women’s Business Center in Laramie.

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Several reports and experts have emphasized that banks prioritized paycheck protection loans with small businesses with whom they already had a relationship, to save money and avoid fraudulent applications.

But decades of bank consolidation and decline in the numbers of community banks have left rural communities with fewer options for local banking. Small-businessowners face greater competition at large urban-based banks with local branches, which often make them a lower priority, said Becky McCray, a rural entrepreneur and small business expert based in Woods County, Oklahoma. 

“The PPP program wasn’t for everybody, and everybody didn’t have access to it,” said Hampton, whose organization lends to clients in Delaware and southeastern Pennsylvania.

“If you are a smaller business in a rural area, with not real strong banking relationships, you might have been overlooked,” Hampton said. “You had to be a sophisticated business to where you had payroll, and you were able to document the payroll that you have.”

Rural Aid

But small businesses in some rural areas have been more successful in getting federal help.

Fully 100% of rural bank CEOs surveyed in the latest Rural Mainstreet Index by Creighton University consider the PPP a success. More than 1 in 5 want to see the program expanded. The monthly index surveys bankers in rural areas of 10 states in the Midwest or West that depend on agriculture or energy.

Rural states with fewer coronavirus cases and deaths had more early success with SBA loans than businesses in more urban states, according to an April 17 Reuters analysis of SBA and census data.

North Dakota, Nebraska, South Dakota and Oklahoma received the most SBA loans per capita, while California, Nevada, New Jersey and New York received the least. 

But far more early federal relief loans reached small businesses in states where small, local banks comprise a greater share of the market, according to an April 29 report by the Institute for Local Self-Reliance.

For example, banks in North Dakota issued about 1,444 loans per 100,000 people. One-fifth of that number were issued in Arizona, which has the fewest community banks per capita of any state.

Lenders’ preference for borrowers with an existing relationship and the number of community banks largely explain geographical variations in PPP funding, according to the New York Fed study.

It also found that, on a per business basis, the areas most affected by COVID-19, such as New York, New Jersey, Michigan and Pennsylvania, received fewer loans than some Mountain States and parts of the Midwest.

Stateline, an initiative of The Pew Charitable Trusts, provides daily reporting and analysis on trends in state policy. Stateline content is published daily at pewtrusts.org/stateline.