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Closing the Entrepreneurship Funding Gap: Challenges Faced by Legacy Businesses in Rural Iowa


There's a gap in entrepreneurship that I've talked about before, but never quite in this way. The other day, I was on a survey with two national small business advocate organizations, and I broke it down like this.

So I thought maybe this breakdown would be helpful here as well.


To me, entrepreneurship happens in three primary buckets:


1. Legacy Businesses: These are mom-and-pop, craft and brick and mortar businesses that usually stay intentionally small (or do they? More on that later).

2. Service-based Businesses: Easier to scale as solo-works, which keeps overhead low, they align well with technology, and their model is built to prioritize service.


3. Start-ups: Businesses that are capable of scaling and can start small with low overhead.


While there are many businesses outside of these three categories, this makeup represents the majority from my perspective. Regardless of whether you are in the entrepreneur world or not, you've probably heard about funding, grants, and loans for businesses. Funding is where the gap exists, and I believe this gap is contributing to the decline of rural communities.


The likelihood that the next Apple is being built in the garage of a rural community is low, right? It's even lower if you're in Iowa because work would have to stop for half the year to survive the winter. Anyway, the majority of businesses being built in rural communities fall into the Legacy bucket, which means they will likely stay small.


The funding gap is harming these businesses, as I explained on my survey call. If you intend to stay small, you likely won't qualify for help or capital access (like shark tank investors). Furthermore, you also won't qualify for traditional loans since you haven't been around long enough or have "good" enough numbers to justify the bank's investment (traditional banks typically require three to five years of financial data).


These small business organizations are frustrated because they often have to return money; it's not being used for loans to these small businesses. But the actual "small" business can't access it early enough to survive. So two things happen: Those organizations have to give that money back since its not being used. Meanwhile, a small business owner can't get access to good credit opportunities (like the organization's low-percentage loans), so to survive, they tap into predatory credit offerings (credit cards, loans with outrageous terms).

Then, IF they manage to survive and reach the three to five-year mark where they FINALLY qualify for good loans, the bank says no because they have too much bad debt. So once again, they are sunk and forced to depend on predatory offers to survive.


The call ended with this question: How do you think we can make it better? To which I replied, "It's fine if these business owners can't access $100,000 early on, but let's build access to something so they aren't shooting themselves in the foot just trying to survive."


I went on to suggest providing different levels of loans with education and an understanding of financials to position your company to be loanable in the future, rather than educating and shaming once you are "ready."


Now, I often reflect on how things worked back in the day. Why was small-town Iowa successful at one point? Because I truly believe if it was once, it can be again. But the difference is summed up in a story a retiring business owner told me yesterday.


"Hanna," he said, "You used to get money for a business based on character, not numbers." I believe that quote sums up the situation of small towns across the country. Small businesses used to utilize small community banks because they would fund what those communities needed, not just what the numbers said. They trusted business owners to make it happen, not just the numbers.


Now, that all small banks are big banks... I fear that all small businesses must look like big businesses to get access to capital. My bigger fear is they never will, and so they will fail. Legacy businesses have heart and are the heart of communities, but without lenders seeing the heart behind the numbers, they won't last.





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