Facilitating the Flow of Capital to Niche Agricultural Producers in Rural Markets
Van Auken, Howard
Availability of capital has historically been a challenge in rural markets. Niche agricultural producers face a daunting task when trying to raise capital because they commonly have business models that are not well understood by providers of capital and, thus, they are considered high risk. As a consequence, traditional lenders are often apprehensive about providing financing because of this perceived risk. The successful flow of capital is a common challenge both for small firms seeking to acquire capital and for providers of capital. The ability to obtain funding is predicated on a matching of applicant’s characteristics, as documented according to the funder’s requirements. Niche agricultural producers may be representative of a group of potential capital users who view the loan application process is a barrier, rather than an opportunity, to growth of their business. Technical assistance can help overcome these barriers by educating the applicant about the process and requirements associated with capital acquisition. Government programs attempt to fill the financing gap by providing technical assistance that lowers perceived risk and expanding the borrowers’ business networks. Understanding the alternatives in the capital acquisition process can help niche agricultural producers in their search for capital and assist governments and communities in developing policies that can facilitate the flow of capital.
This article is from Small Business Institute Journal 6 (2010): 91.