Rural small businesses need local solutions to survive
The COVID-19 small business crisis is prolonged and uneven, inflicting a disproportionate toll on microbusinesses in underserved communities that are the lifeblood of their local economies. While much attention has been paid to small business closures in urban communities across the country, the same dynamic is unfolding in underserved rural areas, with dire consequences.
Still rebounding from the Great Recession, rural small businesses entered the COVID-19 crisis with compounding, preexisting vulnerabilities. Rural small businesses lack adequate access to capital and broadband connectivity, and are largely concentrated in the industries most immediately vulnerable to the pandemic’s effects. And just like in non-rural communities across the nation, minority-owned rural small businesses face heightened vulnerabilities, as structural racism and systemic economic exclusion compound barriers in capital access connectivity and access to relief. As rural communities grapple with these challenges, they will undoubtedly require coordinated relief to weather this crisis.
But as federal relief lags, it is imperative to also look locally for solutions—to identify and invest in local strategies that have long supported rural small businesses and can play an outsized role in recovery now. Prior to the pandemic, many rural communities were witnessing real successes in fostering small business growth and development through locally led downtown commercial corridor revitalization strategies. Often in partnership with Main Street programs and other place-based entities, these efforts are street-level solutions to community revitalization, designed to support small business development and an accessible entrepreneurial ecosystem rooted in local context. Now, as COVID-19 exposes the economic instability of rural areas and rural small businesses in particular, the viability of these strategies is being tested in real time.
To understand the effectiveness of rural downtown revitalization heading into the COVID-19 recession—and its potential for promoting rural recovery and resilience—this brief examines these efforts’ impact on rural small business growth, development, and success. As part of a five-part series, it draws from on-the-ground research in three rural communities just prior to the U.S. COVID-19 outbreak to highlight key lessons learned and point to the policy and capacity-building supports needed to sustain, improve, and scale downtown revitalization strategies amid the pandemic recession and beyond.
Methods: Examining downtown revitalization and small business development in rural America
The Brookings Bass Center for Transformative Placemaking and the National Main Street Center conducted on-the-ground research in Emporia, Kan., Wheeling, W.Va., and Laramie, Wyo. It consisted of in-depth interviews with 62 residents, business owners, and other key stakeholders, as well as four supplemental focus groups with residents and entrepreneurs between February and March 2020. For a full description of our mixed-methods and approach, see “Why Main Streets are a key driver of equitable economic recovery in rural America.”
Overall, we examined the effectiveness of downtown revitalization strategies on four key outcomes of community well-being, including economic, built environment, social, and civic outcomes. This brief focuses on economic outcomes—more specifically, the growth and development of rural small businesses. Using the Bass Center’s transformative placemaking framework, we examined the extent to which rural downtown revitalization efforts can foster economic ecosystems that are:
1. Locally empowering: Nurturing and supporting the development of local talent, investment, and enterprises
2. Innovative: Fostering creativity, idea exchange, and entrepreneurship
3. Regionally connected: Connecting residents and businesses to regional markets, networks, and economic opportunities
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II. Why small businesses are a backbone for rural resilience
As we demonstrate in “Why Main Streets are a key driver of equitable economic recovery in rural America,” the economy of rural America is changing—and so too must rural economic development. Agriculture employs less than 5% of the rural workforce, and manufacturing employs 15%, while small businesses provide the majority of jobs for rural residents (Figure 1). As farming-dependent communities depopulate due to the growing power of agribusiness, mining counties are subjected to fluctuations in oil and gas booms and busts, and employment in manufacturing counties is on the decline, there is growing recognition that traditional industry cannot save rural America. Not only is a heavy reliance on industry incompatible with the forces of technological change, there are severe human costs as well, including low wages, poor working conditions, and most recently, heightened health vulnerabilities amid COVID-19.
Despite callous assertions that rural economic stagnation is a natural result of progress (and short-sided commentary that moving to opportunity might be the only solution for rural residents), there is a collective imperative to improve economic health and opportunity in rural America. One in five Americans lives in rural areas, fostering deep ties and connections to the community. Rural places are stewards of the public land and natural resources our nation as a whole relies upon, and rural and urban economies have an interlocking, shared future. Moreover, rural leaders across the nation already have the skills—and in many cases are already using the tools at their disposal—to help their communities flourish.
Indeed, research suggests that as an alternative to traditional industry, rural areas can benefit from fostering a vibrant small business and entrepreneurship ecosystem, as rural small businesses have been found to generate wealth that stays in the community, build local leadership, and even contribute to population health. For decades, local actors, place governance organizations, and public officials have engaged in downtown revitalization strategies as a tool for nurturing rural small business development and economic growth. Main Street programs, in particular, have championed place-based revitalization strategies to leverage the density and proximity of rural commercial corridors to cultivate vibrant “regional hubs” that foster locally owned businesses, create employment centers for residents, and contribute to a sense of neighborhood identity that retains residents and attracts new ones. These strategies are meant to be holistic, designed not for a singular purpose of attracting tourism or preserving historic buildings or even growing businesses, but to bring to their communities the resources and amenities that national retailers and groceries often will not—and, ultimately, enhancing the quality of life and opportunity for residents that are often overlooked.
However, despite the widespread adoption of downtown revitalization strategies, relatively little is known about how these efforts can be scaled and adapted to a variety of rural contexts to achieve broad-based economic inclusion in rural America, how these efforts can withstand acute economic crisis, and how to support these efforts in the long term to ensure resilient and inclusive rural economies.
A snapshot into the diversity of rural economies
Nationally, economic prosperity in rural communities varies considerably, depending on the dominant industry in the region (e.g., recreation, manufacturing, agriculture, etc.). Our three study communities each grapple with their own economic challenges and illustrate the regional and economic differences characterizing rural America. (For a more complete description of the three study communities, see “Why Main Streets are a key driver of equitable economic recovery in rural America.”)
Wheeling, W.Va.: As a former industrial center and retail hub, Wheeling has been struggling with depopulation (down 43% since 1970) since the decline of its manufacturing industry. It has a lower median household income compared to other nonmetropolitan towns, and faces considerable disparities in economic well-being by race, with 37% of Black residents in poverty. Wheeling has seen success in attracting some major regional employers to the city in recent years, including Orrick’s Global Operations & Innovation Center and The Health Plan. However, it still struggles in connecting residents to economic opportunity.
Emporia, Kan.: Emporia is home to Emporia State University, city and county government offices, and a Tyson meat-processing plant (which has become a site of vulnerability during the COVID-19 pandemic). Of the study communities, Emporia has the most Latino or Hispanic and nonwhite residents (Latino or Hispanic residents comprise 27% of the population) and the lowest median income ($39,063). The city has experienced slight population decline in recent years, standing at 24,000 residents in 2018.
Laramie, Wyo.: Laramie is one of the poorest communities per capita in the state of Wyoming, and nearly two-thirds of Native American residents there live in poverty. Its contemporary economy is largely dependent on the University of Wyoming and the city’s small retail and health sectors. Unlike many rural areas, Laramie has witnessed small population growth in recent years, and was home to 32,000 residents in 2018.
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III. Findings: Can downtown revitalization help rural small businesses more durably recover from the COVID-19 crisis and build resilience in the long term?
To understand how downtown revitalization contributes to small business and economic development in rural areas, we interviewed 62 small business owners and other key stakeholders, and conducted more open-ended focus groups with small businesses and residents. Our research reveals three multifaceted findings:
Finding #1: Through connection to place governance organizations, downtown revitalization helps increase small businesses’ and entrepreneurs’ access to capital, skills training, and capacity-building supports—providing a critical foothold entering the COVID-19 recession.
For decades prior to COVID-19, place governance organizations and partners in all three communities worked to connect underbanked small business owners and entrepreneurs downtown with greater access to capital and capacity-building resources. This laid the groundwork for small businesses to access supportive networks and services in the midst of the crisis. The primary mechanisms they employed to do so were:
- Identifying nontraditional sources of capital investment: Over the last decade, downtown stakeholders in Wheeling and Emporia launched formal mechanisms to facilitate crowdsourced capital for entrepreneurs who struggled to obtain the right-size investment from traditional banks. For instance, Wheeling’s Main Street organization launched a competitive crowdfunding event—Show of Hands—in which entrepreneurs pitched their business plan to a crowd and the winner walked away with a sizeable prize. Ideally, the community also became invested in the success of the participating small businesses. As one Wheeling resident said of the event, “They had 600 people upstairs…The crowd was insane. I think the person left there with a $14,000 or a $16,000 check to start their business…That kind of shock and awe and focus on entrepreneurship…nobody else is doing that.” In Emporia, the regional university downtown co-created a crowdfunding strategy to close the capital gap, launching a membership-style investment program of interested residents who provided small businesses with $5,000 loans to repay after five years, while participating businesses paid interest on the loan in the form of monthly $25 gift cards. At the outset, these strategies were designed to raise capital for underserved small businesses, but ultimately they created a built-in base of local supporters invested in the success of these small businesses and provided a dedicated customer base and culture of supporting small businesses entering into the COVID-19 recession.
- Training local financial institutions and filling in capital gaps: To improve relationships between community banks and downtown businesses, Emporia’s Main Street program regularly conducted trainings with local banks. As their executive director told us, “We’ve done a lot of training with local banks. They know what historic tax credits are now, and how our loan programs work, and how we can mitigate the risk so they’re more likely to say yes to small businesses.” For underserved small businesses who still lacked access to capital, Emporia Main Street offers a revolving loan fund available to entrepreneurs and conducts intentional outreach to underserved Latino- or Hispanic-owned businesses to increase the diversity of business ownership downtown. As an Emporia resident and Latino community leader said, “Just within the last few years, Main Street has loaned out to Hispanic businesses. They wouldn’t have been able to open without that. [Main Street] reach[ed] out, offering help.” These efforts to cultivate relationships between community banks, small businesses, and Main Street organizations fostered the connectivity, trust, and access to institutional resources that underserved small businesses would not have otherwise had—providing a pathway for small businesses struggling during the pandemic to reach out for help.
- Providing skills training and tailored capacity-building support: In all three communities, Main Street offices provided tailored capacity-building support and direct counseling to help small business owners refine their business plans, obtain loans, and contemplate business transitions. In Laramie, for instance, we regularly heard about how Main Street helped businesses owners navigate bureaucratic processes: “[Main Street] hooked us up with quite a few people and things that help you develop a business plan or help with whatever you essentially need, and for free,” said one local business owner. Emporia’s Main Street program partnered with Flint Hills Technical College and the Kansas Small Business Development Center at Emporia State University to offer a formal “Start Your Own Business” class. In Wheeling, the Main Street organization partnered with Co.Starters to offer nine-week entrepreneurship training programs—an important outcome of which was to provide participants with lasting peer networks of fellow entrepreneurs. As one Co.Starters participant told us, “For me the most valuable thing I took was the networking. The ability to call somebody up, whether it be the human resource guy who came and taught the class…[or] the auditor who came to the class…They’ve all taken my calls and helped me through.” These direct counseling and training supports have continued amid COVID-19, with Co.Starters facilitating a virtual “Rebuilding” cohort to support Wheeling small businesses. Moreover, our research from this August indicates that connections between Main Street small business owners are, in fact, helping them collaborate to adapt business operations, offer promotions, and weather the economic downturn.
Finding #2: Downtown revitalization helps connect small businesses with low-cost, low barrier-to-entry incubator spaces, and with the relationships needed to mitigate rent costs amid COVID-19.
Like many rural downtowns, all three communities had the asset of historic building stock downtown—offering aspiring business owners relatively low-cost retail space in historic, walkable downtowns (See “The necessary foundations for rural resilience: A flexible, accessible, and healthy built environment” for more details). Yet, for those entrepreneurs who struggled to rent their own commercial spaces, Main Street programs and other downtown stakeholders offered incubator spaces and “launch pad” programs to cultivate business creation by offering reduced-cost commercial space and built-in business counseling and support.
Emporia’s Main Street program houses a small business incubator space in its office, which small business owners could join through an application process. Businesses are offered reduced rents that slowly escalate over an 18-month tenure, as well as access to no-cost fiber internet and phone service. As one Emporia economic development stakeholder said, “Our goal is to develop new businesses and then send them out into the community, into the central business district as rent-paying entities, but to give them a little bit of an economic respite from rent and some of those expenses that are associated with a startup business before they have to start doing everything on their own.” Emporia has also begun the groundwork to launch a fabrication lab for entrepreneurs to build prototypes of products.
In Wheeling, the Main Street program housed the Wheeling Artisan Center Shop within its office building, where local entrepreneurs who did not have the funds for storefronts could sell their retail goods without the costs associated with running a business. In Laramie, the Wyoming Main Street launched a “Made on Main” program aimed at placing small manufacturers in vacant downtown spaces to help them grow, access resources, and interact with other small business owners through selling their products in the locally owned food co-op or working with farmers market vendors. And as small business owners struggle with rent payments amid the pandemic-induced recession, local Main Street organizations have been working with landlords and property owners to identify potential solutions.
The Wheeling Artisan Center Shop. Photo courtesy of Wheeling Heritage Media. The Emporia Main Street office, where the incubator space is co-located. Photo courtesy of IM Design Group.
Finding #3: Through cross-sectoral collaboration, downtown revitalization enhances rural small businesses’ access to city, regional, and state resources—a critical connective tissue in times of crisis.
The most salient role that downtown place governance organizations played in promoting small business development and resilience is serving as a liaison for small businesses in city, state, and regional structures—striving to leverage cross-sectoral partnerships to not only enhance city investment downtown, but also to connect small businesses to their broader regional economy.
- Serving as the connective tissue for accessing city and state resources: In all three communities, local Main Street programs acted as a liaison between downtown business owners, city officials, and state officials to ensure small business owners had access to resources at multiple levels of governance. At the city level, this required forming partnerships with city officials, being aware of city funds, participating in citywide economic development plans, and serving as a constant advocate for downtown interests. Laramie’s Main Street program, for instance, collaborated with the city and university to apply for funding for a wayfinding project downtown. As one stakeholder said, “Main Street had taken the lead on coming up with a wayfinding plan specifically to downtown, but they reached out across the city and we just recently got buy-in from the university and from tourism and from the city. It has gone from our little project of what we were thinking into a full city-wide project.” In Emporia, positive relationships with city officials led to increased financing for the organization, which it could then distribute for the benefit of downtown business owners. As one Emporia public official said, “As a commissioner, when you look at budget, you want to get as much from each allocation as you can, and I always felt very positive that the money that the city invested in the Main Street was really going to provide a positive outcome or result for the city as a whole.” Moreover, Emporia Main Street served as a connector to state resources, identifying matching funds with the state and helping small businesses tap into NetWork Kansas This liaison role has continued (and taken on added urgency) amid the COVID-19 pandemic, as Main Street organizations in all three communities advise small business owners on grant applications for state and federal resources.
- Leveraging partnerships with regional entities: In each community, Main Street organizations also strived to improve connectivity between small businesses and regional institutions, including universities and major regional employers. In Wheeling, Main Street partnered with regional employers to sponsor downtown events and entrepreneurship competitions, as well as fund amenities like bike racks downtown. In Laramie and Emporia—both home to major universities—partnerships were more critical and less straightforward. In Emporia, the local Main Street organization has well-established partnerships with both Emporia State University and Flint Hills Technical College. Through one partnership, downtown businesses are able to bring on university students as interns at no cost to the business owner, with the cost of student labor covered through grant funds and the Emporia State University School of Business. Additionally, through the Start Your Own Business course mentioned above, local entrepreneurs benefit from the expertise of faculty, among others. In Laramie, however, partnerships and collaborations with the University of Wyoming were said to be stunted at times. As one interviewee told us, “We do not bleed brown and gold because our downtown businesses don’t feel like they benefit from UW…It’s infuriating when our university goes online or out of state to buy products, instead of spending them in our community or in Wyoming.” Collaboration between the university and downtown stakeholders has improved amid the hardship posed by COVID-19, however, as the university partnered with Laramie’s Main Street Alliance on an initiative to provide each student with $50 gift certificates to spend at locally owned businesses downtown. Moreover, tourism in Laramie is generally seen as a product of the location of the University of Wyoming. “As much as I would tell you that tourism is huge for us, we also have to remember, for me, when the university is in turmoil, my business feels it,” said one business owner. As COVID-19 reductions in tourism hit these communities particularly hard, it will be critical to continue partnerships with regional universities to leverage their institutional resources to help community recovery.
University of Wyoming in Laramie. Photo courtesy of Shutterstock.
In the last five years, these efforts together helped to increase the number of small businesses in communities’ downtown commercial corridors, bolstering the number of downtown leisure and hospitality businesses in particular (Figure 4) and cultivating business-dense downtown hubs.
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In rural and urban places alike, place-based organizations are being called on to play an expanded role in supporting small businesses amid COVID-19. They are rapidly modifying their work to assist businesses with applications for relief funding, redirecting existing funding streams to create new resources for relief, offering “shop local” campaigns, and engaging the public around businesses’ needs.
Through this research series, we demonstrate how local leaders are not only playing an outsized role to ensure small business survival during this time of crisis, but are implementing holistic strategies to build rural resilience in the months and years to come. They are championing built environment and quality-of-life improvements, strengthening social ties between neighbors, and nurturing new civic structures to advance community priorities. True national economic recovery depends on recognizing the value of this work and of empowered rural community leaders working to tackle place-based inequities and foster inclusive, vibrant, and connected rural places in the long term.
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The authors thank Joanne Kim, D.W. Rowlands, and Evan Farrar for their research assistance.