
Decline of Rural Lending Crimps Small-Town Business - rumcajz
https://www.msn.com/en-us/money/smallbusiness/goodbye-george-bailey-decline-of-rural-lending-crimps-small-town-business/ar-BBHkUYm
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rossdavidh
Speaking as the spouse of an urban small-business owner (retail), I think the
availability of lending is a mixed blessing. Every new small business needs to
learn a few things about what works and what doesn't, before it will be
successful (even when, perhaps especially when, they don't think they do).
Getting a business loan at the very beginning of the business' life, means you
spend all the money when you know the least. Starting lean with just money
raised from family and friends means you have to iterate to bootstrap up, and
this results in getting some learning before you get the money. Nobody thinks
they need to, but I have (in a city) seen more small businesses sunk by their
business loans than helped.

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maxxxxx
Raising money from friends and family is something I would not recommend. If
the business fails you will have a lot of broken relationships unless the
lenders have enough money to not care.

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seanmcdirmid
It also only works if you come from a relatively rich family or have a rich
social circle. Not everyone can tap that.

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cannonedhamster
This right here is something way too few people understand. I basically had to
unlearn a lot of bad habits from my family before I could get myself sorted
and on a path to financial stability.

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Animats
The US used to restrict branch banking across state lines. Before that,
savings and loans were restricted from lending to projects more than some
distance from an office, as they were expected to go out and look at
construction. Now, the US has four big banks.

This is allowed by deregulation, and practical because of the Internet. Banks
don't need lots of little branches. But their customers did.

Most of the little guys did not get in trouble in 2008. They did fine and
didn't need bailouts.

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makomk
The little guys did not do fine. The FDIC was having to step in and handle a
bank failure at a small US bank every couple of days in 2009-2011. Some of
them they managed to find a buyer for, a few resulted in the outright loss of
all funds beyond the FDIC insurance limits. This didn't get nearly the media
attention that the big banks did, but it happened nonetheless.

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candiodari
Whilst I might agree that the GP post is a bit misleading it's still the
truth. America has tens of thousands of little banks.

And yes, there were a few months of a bank failure a day. That still means
only a very small minority of small banks really got into trouble.

It's also not very strange for little banks to, on occasion, get into trouble
close and/or merge and/or get taken over. A normal level for the US would be
about one per month. Europe is still at more than one per week, for the EU
(and frankly it's going down because EU is running out of banks to fail, not
because conditions are getting better).

That said, if you compared the odds of a small bank needing a bailout versus a
big bank needing a bailout, you would in fact find that small banks didn't
really need bailouts. They also never got them, needed or not, and everything
was fine ... well, mostly. ALL of the big ones needed a bailout, and if they
wouldn't have gotten them, ... well we won't know, will we. It would have been
very, very bad for stocks, certainly.

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FiatLuxDave
This decline of rural lending is causing a huge macroeconomic distortion, like
a balance-of-payments issue. A dollar is a dollar, but it is quite apparent
that the value of a dollar is different between rural Mississippi and urban
Manhattan. There has to be a way of gaining from that difference. I feel like
we are staring at the largest arbitrage opportunity in history and doing
nothing.

But when I try to find good ideas to arbitrage it, I'm stuck. Of course, you
can work remotely in San Jose and live in Wyoming, but this doesn't scale. I
suppose opening a rural-oriented bank, to fill the gap, would do the job.
Maybe it would be better to make a Bank-in-a-box kit (Sarbanes-Oxley-
compliant, of course) and sell shovels to the gold miners? Does anyone have
any ideas, good bad or crazy, that they are willing to share or discuss?

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passthefist
It's totally different but I think Dollar General is benefiting from a similar
play.

They've really doubled down on rural areas, mostly playing off of the fact
that people don't want to drive long distances to stores for basics and how
much cheaper they are than the competition.

Dollar General acknowledges the above, but I wonder if any of their success is
related to that distortion?

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geggam
Maybe the bigger news is this...

 _Twelve miles north of Roxobel in Woodland, population 729, Sharon Ramsey
closed the DeJireh Grill because, she says, she couldn’t get bank financing.
At first, she says, the restaurant “was turning a profit, but it was just
enough to stay open.”_

Small town businesses cant turn a profit and as such shouldnt be getting a
loan. They are barely keeping the lights on.

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saas_co_de
Since when is being able to turn a profit a prerequisite for getting loaned
money here?

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CydeWeys
That's the prerequisite for every loan. No one is loaning anyone money with
the expectation that they're going to lose money on it. The expected value of
a loan from the issuer's point of view is always positive. Around these parts,
that's often because, even though the chance of losing it all is 99%, there's
a 1% chance of making it back 1000X (to use an example). We're talking about
profit to the issuer here, which in VC usually comes from selling the company
at a greater amount later even if the company itself isn't yet profitable.

That doesn't apply to lending money to money-losing small businesses. There's
no small chance of making a much larger return than what you lent. The risk is
still high for such a loan, but without the possibility of a much greater
return. The interest on that loan is what it is; it's not like you're buying
ownership in a company like with typical VC equity.

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pjc50
Equity is very different from a loan.

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CydeWeys
And yet that's clearly what the person I was responding to was referring to
when they said "Since when is being able to turn a profit a prerequisite for
getting loaned money here?"

Also, the principle I'm talking about, that of positive expected value,
applies equally to equity and to loans.

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nikanj
In general, we seem to have a growing problem funding traditional businesses,
the ones that need X dollars in working capital, and return a healthy 5-15% on
that capital per year.

Banks will not lend you the money, unless you already have the money. VCs will
not bother with such paltry ROI.

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qrbLPHiKpiux
Too many businesses start with good intentions and not enough capital. I've
seen those, in my industry, that think hanging a shingle is enough to generate
a solid income. They over spend, Taj Mahal everything, and BK shortly
thereafter.

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cowsandmilk
The article describes a real problem, but there are some items that make it
obvious a little modernization could go a long way for a few of the
businesses.

They talk of cashing checks, and the end of the article makes clear that the
peanut process business doesn't offer direct deposit to its employees. Having
direct deposit isn't that complex compared to the rest of the business and
would eliminate needing to drive long distances to deposit or cash checks.

Another thing, I'm a little surprised that the banks don't offer a drop safe
w/ daily or weekly pickups even if they've eliminated a branch in a town. Much
less expensive to install and maintain than an ATM, allows your business
customers to drop off the cash each day.

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Broken_Hippo
I'm not surprised.

To have a random drop box means you need to make sure it is at least as secure
as an ATM - maybe more so. After all, businesses are losing their deposits,
sometimes more than one if they only get it weekly. If it gets stolen, then
what? Take the businesses' word for the deposit and give it to them or let the
police handle it? For a small business, that could be catastrophic.

On top of that, the boxes will need collected at some point, which means an
armored car trip out to some small country town.

By the time you are dealing with the theft thing and you are having an armored
car daily or weekly anyway, it might be a little easier to just send the
armored car to the businesses and let them take care of the security the other
part of the day. As a bonus, some of the regional or national chains already
have such systems in place in some stores (gas stations, pharmacies, fast
food, and so on) so they will be pretty prepared already. The rest could have
a drop safe installed on-site, probably renting it from the bank.

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kylehotchkiss
I've generally gone online banks over local because I want things to work when
I'm out of my hometown. What would "Bank of the James" for me if I'm stuck in
England with a declined or broken card?

I'm sure people's increasing need for services regarding their balance/card
leads them to choose larger financial companies over a local one. Wells Fargo
is well known for fees, fees, fees but they have a solid customer base because
you know your card will work in Iowa or DC or Morocco.

When people just needed a place to store cash, and could withdrawal it and
travel local banks were fine. Needs have changed a little with the times. That
reduces the lending pool too.

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mikestew
_What would "Bank of the James" for me if I'm stuck in England with a declined
or broken card?_

Probably fix the problem faster than Wells Fargo, that’s what they’d do. I’ve
never even given thought to using the credit card from my Pacific Northwest
credit union anywhere I like, and I have no reason to think otherwise. You’re
worry about a problem I’ve seen no evidence of being an actual problem.

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arcbyte
With mobile banking and check depositing I agree, but ten years ago the
availability of physical branches and my frequent travel as an out of state
college student led me to choose BoA over local options. Today Im local only
because the big banks have such terrible fees and policies.

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TomK32
> Simple transactions require more planning. Employees must leave earlier to
> cash their paychecks, says Ms. Baker, who plans to add automatic deposit
> next year.

Paychecks... As a European I'm always suprised about how primitive the US
financial system is.

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Panino
I don't know any businesses that use paychecks in the US, though surely they
exist - it's a big country. Be careful about how quick you are to judge an
entire country based on what you read online, ok? (My company with a rural
office does automatic deposit.)

When I worked in France we didn't have toilet seats. When I asked someone why
not, they said the toilet seats would get stolen. They looked at me like I had
just asked a _really_ stupid question, like _obviously_ people want to steal
toilet seats. Even though theft was rampant (my coworker's comically shitty
bike was stolen, and people warned me that anything not nailed down would
disappear), I tried not to judge all of Europe based on this personal
experience.

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pnutjam
non-paywall source: [https://www.msn.com/en-us/money/smallbusiness/goodbye-
george...](https://www.msn.com/en-us/money/smallbusiness/goodbye-george-
bailey-decline-of-rural-lending-crimps-small-town-business/ar-BBHkUYm)

~~~
dang
Thanks! Changed to that from [https://www.wsj.com/articles/goodbye-george-
bailey-decline-o...](https://www.wsj.com/articles/goodbye-george-bailey-
decline-of-rural-lending-crimps-small-town-business-1514219515).

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dcroley
Can't seem to find a non-paywalled version.

