Decline of Rural Lending Crimps Small-Town Business

The financial fabric of rural America is fraying. Even as lending revives around cities, it is drying up in small communities. In-person banking, crucial to many small businesses, is disappearing as banks consolidate and close rural branches. Bigger banks have been swallowing community banks and gravitating toward the business of making larger loans. The decline of community banks has disproportionately affected rural U.S. counties, where relationship banking plays an outsize role. There are now 625 rural counties without a community bank based in the county. Distant banks with few ties to local communities—which often rely heavily on algorithms to gauge creditworthiness—are also less likely to have the personal relationships that have helped local bankers judge which borrowers were a good bet.The phenomenon, almost automatically, is getting worse. Bankers say they don’t see enough business in small towns. Small towns say bank closings make it harder to do business.