Rural Development:

Availability of Capital for Agriculture, Business, and Infrastructure

RCED-97-109: Published: May 27, 1997. Publicly Released: Jun 26, 1997.

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Pursuant to a congressional request, GAO examined the availability of capital in rural America for agriculture, business, and community infrastructure, focusing on: (1) whether rural borrowers have difficulty in obtaining access to capital; (2) whether rural borrowers have adequate knowledge of the availability of financial assistance; and (3) what potential alternatives may be used to improve the availability of capital.

GAO noted that: (1) many sources of financial assistance are available to meet rural areas' demand for capital; (2) while commercial banks and the Farm Credit System are the primary providers of capital for agriculture and rural business, rural communities more often turn to the public sector to obtain capital for infrastructure; (3) most creditworthy rural business and agricultural borrowers and rural communities with an adequate tax base generally have little difficulty in obtaining capital, according to rural officials; (4) however, the officials GAO surveyed believe that certain borrowers in rural areas, such as start-up, expanding, and minority-owned businesses and financially struggling rural communities, have difficulty in obtaining capital because they lack: (a) equity or collateral, (b) business or management skills, or (c) an adequate tax base; (5) rural officials could not quantify the severity of these difficulties, but believe that economic development in their areas is hindered by these borrowers' difficulties in obtaining capital; (6) rural development and lending officials GAO surveyed also believe that potential agricultural and business borrowers are not always aware of the range of financial resources available to meet their capital demands; (7) however, these officials do not believe that this lack of awareness should, by itself, prevent borrowers from obtaining capital; (8) rural development officials believe that the primary providers of capital in rural areas are familiar with alternative sources of funds and can direct borrowers to these sources; (9) while the extent of rural areas' difficulties in obtaining capital has not been determined, rural development officials suggested three proposals to make capital more available in rural areas; (10) one proposal would use existing loan guarantee programs and technical assistance entities to target resources to borrowers that are having difficulty obtaining access to capital; (11) another proposal would modify the charters of some government-sponsored enterprises to expand their loan-making authority or require them to lend funds to borrowers that currently have difficulty in obtaining capital; (12) the third proposal would allow community-based revolving loan funds financed with federal dollars to sell their loans into a secondary market; (13) it is unclear, however, whether the potential benefits of these proposals for rural areas would exceed the potential financial losses to the federal government; and (14) targeting funds to borrowers in rural areas that are having difficulty obtaining access to capital may result in fewer funds being available to creditworthy borrowers.

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