Cutting the Lifeline for Rural America’s Small Businesses

Tanya Fiddler

Although our current administration recognizes the importance of small businesses to our economy, their actions don't

Although our current administration recognizes the importance of small businesses to our economy, their actions and those of Congress don’t support their claims. Last week, the House of Representatives advanced a proposed federal budget that would have devastating economic effects in rural America and especially in Indian Country. The latest budget cuts funding for a little-known community finance industry that is comprised of small but mighty economic engines.

These organizations, known as community development financial institutions or CDFIs, help aspiring entrepreneurs start and grow small businesses. And, more often than not, they are the only source of capital for small businesses in rural and Native American communities. For example, on the 2.8 million-acre Pine Ridge Reservation in South Dakota, Lakota Funds, a Native American CDFI, is the only lender that provides capital to small businesses. Yes, that’s right – the only commercial lender in an area larger than Delaware and Rhode Island combined.

Even President Trump has stated, “Small businesses are a primary driver of the American economy and when they succeed so does the country.” Small businesses are responsible for two out of three new jobs created in America. They employ 58 million Americans and generate about half of our nation’s goods and services.

Securing the right financing is critical for small businesses. Without it, most businesses cannot start, operate, or grow. Hundreds of organizations like Lakota Funds are deploying small business loans in markets considered too high-risk or low-volume by traditional lenders. While many mainstream banks see rural and Native communities as unprofitable, CDFIs have developed a lending model that is working in these areas.

Last month, Lakota Funds closed a $67,500 loan for a construction company that will build small, energy-efficient homes. This one modest loan will have a tremendous impact in a small, rural community that is home to 846 people with a median household income of $26,000. It will create two full-time jobs with livable wages in an area where over half of people live in poverty and about a third of the workforce is unemployed. It will create four paid intern positions, providing critical job training in an area where over two-thirds of people have not graduated high school. Think about that! A $67,500 loan will help this one small business employ 1% of their town’s total population.

The Northwest Native Development Fund, a Native CDFI in northeastern Washington, has deployed $612,000 in loans over the last year. A logging company on the Spokane Indian Reservation is the recipient of one of those loans, and with it they will expand operations, adding two jobs to an existing crew of six. The loan will help them increase production by three times and increase their annual profit by $100,000.

Nationwide CDFIs financed 14,700 businesses in 2017 alone, and that’s a modest estimate. CDFIs across the country are breathing life back into rural communities. CDFIs that serve Indian Country are transforming communities from a culture of dependence on the federal government to one of self-sufficiency.

So why isn’t Congress supporting the organizations that are responsible for small business growth and job creation?

Their most recent federal budget for FY2019 includes a $59 million cut to the primary funding source for CDFIs, a program administered by the U.S. Treasury called the CDFI Fund. The program for Native American CDFIs would be cut by $3 million. The President’s budget calls to zero out the program all together, leaving only a small amount for administrative purposes. For rural and Native communities, this would drastically reduce small business’s ability to access capital, and in some cases, this would eliminate their chances to secure business financing.

Rural and Native communities are parts of the country where venture capital firms and angel investors do not frequent. They are places where populations and traditional financial institutions alike are sparsely dispersed. But although they lack the networks, resources, and infrastructure of urban areas, they are not short on innovative and passionate entrepreneurs who are driven to make their home town a better place. For the majority of those entrepreneurs who don’t have a CDFI in their community, their dreams to start a business, offer goods and services locally, and create much needed jobs, never make it past the idea stage. Without financing, they are dead in the water.

While the CDFI Fund takes up a tiny fraction of our nation’s overall budget, it has a tremendous impact in the rural and Native American community finance field. These small loan funds that operate on shoe string budgets with limited staff practically turn water into wine. Without funding from the CDFI Fund, some rural and Native CDFIs would have to greatly scale back operations just to survive. Many would have to close their doors. At the very least, it would mean the loss of hundreds of jobs in rural America.

If our legislators truly recognize the value of small businesses, they will support the CDFI Fund and its Native American initiatives. Currently, Congress is considering next year’s budget. Our nation’s budget needs to restore funding for these programs that are critical to small business development and job creation in rural and Native American communities.

Tanya Fiddler (Cheyenne River Sioux) is the Executive Director of the Native CDFI Network, a national organization that strives to be a national voice and advocate that strengthens and promotes Native community development financial institutions (CDFIs), creating access to capital and resources for Native peoples. Tanya recently received the 2018 Small Business Administration “Women Empowerment & Entrepreneurship Award.” She previously served on the CDFI Fund’s Community Development Advisory Board and is a frequent speaker and workshop facilitator at regional and national conferences – including a two-time presenter at the Clinton Global Initiative America. She has provided testimony at policy hearings, and continues to be an active voice in Native community and economic development.