Washington, DC – Today, the National Community Reinvestment Coalition (NCRC) released a report entitled “Access to Capital and Credit in Appalachia and the Impact of the Financial Crisis and Recession on Commercial Lending and Finance in the Region.” The report, which was commissioned by the Appalachian Regional Commission, and authored by NCRC and Woodstock Institute, details trends in the availability of capital and credit to small businesses in the Appalachian Region. The Appalachian region, as defined by the Appalachian Regional Commission, is a “205,000-square-mile region that follows the spine of the Appalachian Mountains from southern New York to northern Mississippi. It includes all of West Virginia and parts of 12 other states: Alabama, Georgia, Kentucky, Maryland, Mississippi, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, and Virginia.” The report finds that while Appalachia trailed the nation in economic development before the recession, the disparity grew drastically between 2007 and 2010, at the height of the economic crisis.

“This study highlights the fact that Appalachia experienced an especially severe economic downturn,” said NCRC President and CEO John Taylor. “Historically underserved areas such as Appalachia were hit hard by the Great Recession and are still struggling to regain lost ground. It is imperative that both public and private institutions work together to strengthen small business lending and community development.”


“Small businesses are engines for job creation,” said Dory Rand, president of Woodstock Institute. “Access to capital for small businesses will be critical to the economic recovery of underserved regions, like Appalachia. Unfortunately, this report shows that lending trends are heading in the wrong direction in communities that badly need investment.”

The report shows a decline in small business lending during the recession that not only slowed business growth in Appalachia at a greater rate than the rest of the nation, but also furthered the regional split between economically stronger counties in urban areas and disadvantaged and rural counties. In 2007, more than half of small businesses nationwide received loans, but by 2010 that number had plummeted to less than a quarter, while loans to small businesses in Appalachia dropped to 18 percent below national levels. In 2009, credit was denied to slightly under 9 percent of small businesses across the nation, while in Appalachia almost 23 percent were turned away. Lending levels in the most disadvantaged counties of Appalachia were even lower, at 44 percent of national rates.

Access to banking remained a problem in Appalachia, the report shows. While there was a modest increase in bank branches in Appalachia between 2007 and 2010, the rate of lending was still much lower than nationwide, despite regional bank assets of nearly $500 billion. In 2010, banks issued 41 small business loans per branch across the nation, while in Appalachia, banks provided 25 loans per branch. Furthermore, the increase in branches of banks not headquartered in Appalachia disproportionally occurred in the economically advantaged counties. As a result of all these trends, small business owners in Appalachia than the nation were more likely to rely on credit cards and personal savings to finance their businesses.

Appalachia also lacks access to equity financing. Only 5 percent of the businesses in Appalachia that sought angel capital succeeded in acquiring it, compared to 20 percent of firms nationally. Community Reinvestment Act (CRA)-covered banks in Appalachia made $762 million in investments in affordable housing, compared to just $150 million in small businesses from 2007 through 2011.

Lending by Community Development Financial Institutions  (CDFIs) rose significantly and CDFIs effectively targeted disadvantaged communities for development. In contrast, Small Business Administration (SBA)-backed lending in 2010 was 30 percent less in Appalachia than the rest of the nation and was not focused on disadvantaged counties. Both CDFI and SBA-backed lending was small compared to conventional bank lending, suggesting that CDFIs and SBA programs cannot be counted on to counteract all disparities but should be targeted in a strategic manner to a subset of counties.

The report offers a number of recommendations for stakeholders in the region to improve capital and credit access through existing structures and new initiatives:

  • CRA exams should increase attention to rural areas and locations with fewer bank branches to provide a comprehensive assessment of regional credit needs and better target underserved areas. For banks headquartered in Appalachia, CRA exams should focus more on lending and equity investments in small businesses.
  • Public and private sector partnerships should increase access to credit, equity financing, and small business technical assistance programs.
  • Bank branching should be encouraged, particularly in disadvantaged counties, since lending is higher in counties with more branches. New York state operates a program supporting branching in underserved areas, which can serve as a model for increasing branching elsewhere in Appalachia.
  • CDFIs in Appalachia are effectively targeting distressed counties and should be supported by greater access to public and private sector financing. Stakeholders should improve the targeting of SBA-backed lending to distressed counties.
  • The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 requires the Consumer Financial Protection Bureau (CFPB) to improve the publicly available small business loan data to include the race and gender of the borrower and to require more financial institutions to report data. This would help tremendously in understanding lending patterns and credit gaps in regions like Appalachia. The CFPB should expeditiously implement this data requirement.

NCRC will host a free webinar on the report’s findings on December 9 at 2 P.M. EST. To register, visit here.

To view the full report, visit here.