Page 144 - 1-Entrepreneurship and Local Economic Development by Norman Walzer (z-lib.org)

Building Communities through Entrepreneurship Development 133

grams and community-based revolving loan funds—may still play an im-
portant role in meeting the capital needs of rural entrepreneurs.
Banks and nontraditional lenders, such as community development fi-
nancial institutions, are playing an increasingly important role as the capi-
tal needs of entrepreneurs grow. In addition, some public sector programs,
such as Small Business Administration (SBA) guaranteed loan programs
and the U.S. Department of Agriculture’s Intermediary Relending Program
(IRP), may become important to rural entrepreneurs in regions served by
banks and community institutions that deliver these programs locally.
Historically, community banks have played an important role in most ru-
ral communities. Community bankers made the loans to build the rural
economy. The challenge, as articulated by Mark Drabenstott (2005) with
the Center for the Study of Rural America, Federal Reserve Bank of Kansas
City, is whether these community bankers will continue to adapt and accept
a new role in rural America—one that requires them to lend to new econ-
omy businesses, to support locally grown entrepreneurs, and to think re-
gionally.
Community banks have traditionally been important to local entrepre-
neurs and small businesses, lending proportionally more of their resources
to small businesses and farms than their larger counterparts. With deregu-
lation and consolidation in the banking industry has come increased con-
cern about access to capital for small business borrowers, especially in rural
communities. The evidence on the impact of deregulation on entrepreneurs
is still out, however (Hanc 2006).
On one hand, rural entrepreneurs have benefited from the “relationship”
lending of many community banks, where the local banker relies on local
knowledge of the entrepreneur and the community to assess the potential
risk associated with a loan. This type of lending is especially important for
new entrepreneurs seeking capital to support their business operations.
On the other hand, larger banks may bring new services and sources of
credit to a rural market and may be able to overcome through their use of
standardized lending criteria the discriminatory lending practices that some
minority entrepreneurs may experience in smaller communities. In both
cases, an entrepreneur’s access to capital may depend in large part on a lo-
cal banker’s attitude toward lending to small businesses in support of local
economic development and the entrepreneur’s ability to make the case for
financing—specifically, having the collateral and assets needed to satisfy the
local bank’s requirements.
The ability to access bank capital may depend, in part, on the use of guar-
anty programs such as those offered through SBA. The SBA’s primary loan
guaranty program, 7(a), makes it easier for banks to lend to entrepreneurs
who are unlikely to qualify for loans on reasonable terms. Up to 85 percent
of loans under $100,000 may be guaranteed by SBA, reducing the risk to the