Along the Roanoke River, economic developers and policymakers in Martin County were not strategically planning a pitch to land Amazon’s HQ, nor were they particularly confident that they could lure Apple to the quaint streets of Williamston. Local leaders have long embraced the fact that their economies depended not on the big splash of major retailers, but the formation, retention, and expansion of small businesses. It is in this context that the NC Rural Center’s report on Small Business Dynamism in North Carolina, detailing the long term decline of business formation in rural North Carolina, is particularly distressing.
In an effort to grasp the implications of a slower recovery in rural North Carolina, the report reveals that “dynamism” — defined as economic vitality spurred by new firm creation, increased employment growth, wage growth, and labor mobility — has faded steadily outside of urban and suburban counties. According to the NC Rural Center, between 2005 and 2015 rural counties have lost 4,289, or 7 percent, of their very small firms. These, according to the center’s definition, are firms with less than 10 employees — the heart and soul of economies like Martin County. This is starkly different than the increase urban counties saw during the same 10 years. The six core metro counties added 5,534 (+9%) firms with fewer than 10 employees. After the Great Recession, small businesses grew rapidly in urban counties, seeing an increase of 3,180 (+5%) firms with 10 employees or less, while rural counties lost 2,657 (-5%).
While the report argues that there are a number of potential reasons for the decline of businesses with fewer than 10 employees in rural NC, it identifies access to capital as a primary contributor. Access to capital is a vital part of any firm’s ability to “get started, keep going, and grow,” but particularly so for small firms. In an effort to explain the increasing scarcity of commercial lending, the report points to the loss of local bank branches (252 from 2010 to 2015), which hit rural North Carolina especially hard. The net reduction of five rural bank branch closures for every one urban closure has created a desperate shortage of commercial loan officers in places least positioned to withstand such a shock. These officers are best situated to understand the nuances of the local market and work directly with rural small business communities to provide financing tailored to fit their needs.
Predictably, lending declines emerged. The report revealed that from 2005 to 2010, rural small business lending decreased by 53 percent, or $1.4 billion dollars, in North Carolina. In the five years after the Great Recession (2010 -2015), urban counties only saw a 1 percent decrease in small business lending. However, rural counties continued to experience steep declines, a loss of $218 million dollars, or 17 percent. Rural Eastern N.C. business communities faced the economic shocks brought by hurricanes Matthew (2016) and Florence (2018), starved of capital for the past decade. Innovative minds in rural Western N.C. are finding it difficult to finance the transition of old manufacturing operations to ventures suited for their community and a 21st-century economy.
This report offers undeniable evidence that a “tax cut only” policy will not provide the support necessary to reverse the trends that are undermining the formation, growth, and retention of small businesses throughout rural North Carolina. Special attention needs to be devoted to solving the challenges around access to capital so that the state’s brightest minds and ideas can prosper in their beloved communities.
Read the report here.