Rural and Non-Rural Entrepreneurs Face Economic Uncertainty - How do They Prepare?

Rural entrepreneurs are the subject of SCORE’s latest study in its “Megaphone of Main Street” research series, which spotlights overlooked and undervalued small business communities.  In this and my next column, I will provide a summary of the key findings in the analysis of this study. 

Anxiety continues for small business CEOs.  From ample space and clean air to small government and a strong sense of community, rural towns and geographies have a lot to offer. One thing they typically lack relative to cities and suburbs, however, is resources. Small businesses in rural areas therefore have to jump higher than those in non-rural areas in order to clear even the most basic economic hurdles. And in the present climate, there is no shortage of economic hurdles to clear, according to Megaphone of Main Street survey respondents.

Although most entrepreneurs agree that business is back, however, small businesses everywhere have been through the wringer. In both rural and non-rural geographies, however, entrepreneurs say their business is faring at least as well as it was before the COVID-19 pandemic—and in many cases, better. 

Over a third of small business owners (34.7%) say their business has returned to pre-pandemic levels, and four in 10 (42.6%) say their business is either somewhat stronger or much stronger. Less than a quarter (22.7%) say their business is worse off. There were no significant differences between rural and non-rural entrepreneur responses, when asked the survey question below.

However, rural entrepreneurs remain anxious about the future.  Where it was possible and appropriate, the research compared entrepreneurs’ responses for this data report with entrepreneurs’ responses from our February survey for the Spring 2022 Megaphone of Main  Street: Inflation and the Economy data report. What the analysis yielded was a picture of growing pessimism among small businesses in rural communities.

In the most recent survey, over half of rural entrepreneurs (53.3%) said they feel somewhat or extremely negative about the economy as compared to non-rural entrepreneurs (42.9%). Just 43.6% of surveyed small business owners felt pessimistic in February 2022.

Although customer acquisition remains the top challenge for all small business owners, inflation, the economy and cash flow are growing concerns.

This study compared business-owner sentiment from our July 2022 survey with business-owner sentiment from our February 2022 survey and discovered a consistent but evolving set of challenges for small businesses of all types, regardless of location.

For both rural and non-rural businesses, getting customers—that is, generating revenue—was the top concern in February, and remained the top concern in July. That’s followed by cash flow, inflation and the overall economy, all three of which experienced upticks in the number of entrepreneurs citing them as concerns.

Rural entrepreneurs feel more challenged by inflation and supply chain concerns. The study compared rural and non-rural entrepreneurs’ biggest concerns and found that business owners in rural and non-rural areas are equally concerned about finding and retaining qualified workers. But when it comes to the challenges that are most dominating business discourse in 2022—inflation and supply chain disruptions—rural business owners are more likely to feel the impact. Specifically, rural business owners were 30.2% more likely than non-rural business owners to cite inflation as one of their top three business concerns, and 32.4% more likely to cite supply chain disruptions.

Higher prices for rent, utilities, supplies and financing are creating cash flow problems for rural businesses.

For small businesses everywhere, cash flow is king. But for rural businesses, especially, cash flow is becoming increasingly constrained by rising costs for utilities, supplies, labor and capital. In fact, rural entrepreneurs are 9.3% more likely than non-rural entrepreneurs to report higher costs of doing business and 24.5% more likely to report higher vendor prices.

Inflation is complicating businesses’ cash flow conundrums even further. Because their customers also are experiencing higher prices, demand for products and services in many cases is falling and payments are often delayed.

The study asked What are your specific challenges regarding cash flow?  Although most of them need it, many small businesses can’t get outside financing. Most small businesses—approximately two-thirds of those in both rural and non-rural locations— say they could benefit from outside financing. And yet, many of them either do not apply or do not qualify. In fact, three-quarters of all small businesses say they experience challenges with access to financing.

Among the factors that keep small businesses from seeking or obtaining financing are high interest rates and poor credit history. For rural entrepreneurs, however, another barrier looms large: Compared to non-rural entrepreneurs, twice as many rural entrepreneurs say there’s a lack of local banks in their area from which to seek financing.

Other studies confirm rural entrepreneurs’ financing frustrations. The Federal Reserve Bank, for example, reports that nearly 60% of small businesses in rural communities rely on smaller banks and credit unions as main sources of financing.7 Meanwhile, 89% of the U.S. counties that are “deeply affected” by the closure of bank branches are rural, it says.

Small business owners want help in the form of capital, debt relief and infrastructure improvements.

No one is better equipped to suggest solutions to the challenges small businesses face than the entrepreneurs who live them on a daily basis. We asked small business owners what would most help them succeed in the coming year. Both rural and non-rural businesses cited access to capital as the solution that would most help them, followed by loan forgiveness or debt relief. Interestingly, rural businesses were 24.5% more likely than non-rural businesses to suggest assistance in the form of infrastructure improvements.

About the Author(s)

Dean Swanson

Dean is a Certified SCORE Mentor and former SCORE Chapter Chair, District Director, and Regional Vice President for the North West Region, and has developed and managed many businesses. The Rochester Post Bulletin publishes his weekly article on a topic geared toward the small business community. The articles here are printed in their entirety.

Certified SCORE Mentor for the Southeast Minnesota Chapter

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Economic Anxiety Persists For Small Business Entrepreneurs