Capital Access in Rural Virginia

This study aims to determine whether there are inadequacies in the rural financial markets of Virginia. The study:

• Is based on data from a survey of farm and non-farm small businesses, in five rural counties in Virginia;
• Uses a "Probit model" to determine whether the financing difficulties of farm businesses is determined by non-risk characteristics of users of capital and/or non-risk characteristics of local capital markets;
• Uses four variables representing different aspects of financing difficulty as the dependent variables in the study:

The analysis indicates that:

• Businesses' risk characteristics should be the only determinant of the financing difficulty faced by capital users;
• However, non-risk local businesses' characteristics and local financial market characteristics also determine access to capital;
• Some of the most influential non-risk characteristics are firm size, number of non-local locations, number of competitors in the financial market, form of ownership, size of local financial institutions;
• There are large differences in the way financing needs are met in different economic sectors in rural areas;
• Non-agricultural businesses have less access to financing than agricultural businesses;
• There is a lack of information in rural financial markets.

The study uses the analysis results to identify ways to increase the availability of cost-efficient capital for new and small businesses in rural areas in Virginia. These include considerations on how to improve governmental presence in rural capital markets to facilitate better access to capital.