The higher the number of local banks in a rural area, the greater the chances that local businesses have opened or expanded with the help of small business loans, a new Baylor University study reports. The study suggests that the local bank is key to economic development in rural communities.
“It allows local business owners in nonmetropolitan America greater access to the types of capital that often prove most useful and affordable to start and maintain businesses,” writes lead author F. Carson Mencken, Ph.D.
According to Newswise, the benefit of conventional loans “is that they allow businesses to be more flexible and weather sales downturns. They also do not require that business owners invest large portions of their personal savings. That enables owners to maintain a personal reserve to weather the early years of a new business, when profits tend to be small or absent.”
This raises concern due to the sharp downturn of local banks in rural areas - from 80% in 1976 to 20% at present day, as reported by the US Commodity Futures Trading Commission.
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