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Financing Rural Businesses: Challenges and SBA Lending Options


Rural businesses play a vital role in supporting local economies and fostering community growth. However, securing financing for these ventures can present unique challenges due to factors such as limited access to capital, remote locations, and specific industry needs. In this blog post, we will explore the challenges faced by rural businesses in obtaining financing, provide examples of rural businesses, and delve into lending options available through the U.S. Small Business Administration (SBA) to support their growth.

How is “Rural” Defined?

As of 2020, the US Census Bureau defines “rural” rather simply as any area that is not urban. Urban areas are defined as a “densely settled core of census blocks” of at least 2,000 housing units or a population of at least 5,000. Any communities or populations outside of this criteria are considered “rural” according to the US Census Bureau. 

If you are unsure if you live in a rural area, you can enter your address into Rural Health Information Hub’s handy search tool

Challenges in Financing Rural Businesses

Limited Access to Capital

Rural areas often have fewer financial institutions and investors, making it challenging for entrepreneurs to find local funding sources. This limitation can hinder the growth and development of rural businesses.

Distance and Remote Location

Many rural businesses are situated in remote areas, far from urban centers, which can make it difficult to attract lenders and investors who prefer more accessible locations. The distance can also increase transportation costs and affect supply chain logistics.

Industry-specific Challenges 

Rural businesses, such as agricultural enterprises or eco-tourism ventures, may face unique challenges related to seasonality, weather conditions, or specific market demands. These factors can make lenders hesitant to provide financing due to perceived risks associated with these industries.

Examples of Rural Businesses

There are many types of businesses that operate in rural areas. Some of the more common ventures include:

  • Family-owned farms: agriculture is a cornerstone of many rural economies. Family farms engaged in crop cultivation, livestock production, or specialty farming face challenges in accessing capital for land, equipment, and operational expenses.
  • Tourism and hospitality businesses: rural areas often boast natural attractions, historical sites, or recreational activities that draw tourists. Bed and breakfast establishments, eco-lodges, outdoor adventure companies, and small-town restaurants all contribute to rural economies but may face hurdles in securing financing.
  • Renewable energy projects: rural areas provide ample opportunities for renewable energy initiatives, such as wind or solar farms. These projects require substantial upfront investments and can benefit from specialized financing options.

SBA Lending Options for Rural Businesses

The U.S. Small Business Administration offers various loan programsa designed to assist rural businesses in obtaining financing. Here are some key options:

  1. SBA 7(a) Loan Program

This flagship program provides general-purpose loans for small businesses, including those operating in rural areas. The loans can be used for working capital, equipment purchases, real estate acquisition, and more. SBA 7(a) loans feature favorable interest rates and longer repayment terms.

  1. SBA 504 Loan Program 

Ideal for businesses requiring substantial long-term financing, the SBA 504 program assists in purchasing fixed assets such as land, buildings, and equipment. This program partners with Certified Development Companies (CDCs) to provide loans that promote job creation and community development.

  1. SBA Microloan Program

Rural businesses seeking smaller loan amounts can benefit from the Microloan program. These loans, offered through nonprofit intermediaries, provide financing up to $50,000 to support working capital, equipment purchases, or inventory needs. You can utilize the SBA local assistance tool to search for resources in your area. 

SBA Loans for Colorado Rural Businesses

Colorado is home to many rural counties, many of which help support our state with their agricultural, tourism, and ecological endeavors. Cedco is proud to help these businesses secure financing for crucial assets, such as land and equipment, so our rural entrepreneurs can continue to make our state a better place. If you are a rural business owner looking to secure a 504 loan, or you have questions about other financing options, please call our office or visit our website today. 

birds eye view of a rural community
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