May is Small Business Month, a time to celebrate over 30 million entrepreneurs that represent over 99% of all U.S. businesses. As I have highlighted in an earlier piece , small businesses are key drivers of Rural America, and like so many aspects of the current economy, they are facing some unique opportunities and challenges.

The Kansas City Federal Reserve is the branch that tracks Rural Economic Development and their Small Business Credit Survey show that small enterprises make up 85% of rural business, providing jobs, services and leadership to rural communities. Yet, they face not only the typical dynamics of business ownership (inflation, regulatory compliance, tariffs) but some unique challenges as well.

As our country turns 250 this summer, it is an interesting time to revisit the 8 unique challenges to rural small business highlighted in that report and consider the implications of current policy and market dynamics on Main Street America.

1. The Covid-19 Pandemic Hit Rural Businesses Especially Hard

The impacts of Covid-19 continue to reverberate throughout communities and our economy. There was evidence that the pandemic had some upside potential for small businesses, including increased visitorship and staycations focused on the open spaces of Rural America. And, many fell in love with the countryside and used remote work options to move there, leading to the first population growth in rural America in decades. However, the Fed report shares that, as of 2024, rural businesses never recovered at the same rate as those in urban areas and “return to work” orders threaten to pull more population back to cities, particularly in areas that struggle to create jobs, which leads to the next theme in their list….

2. Rural Firms Remain Small With Limited Job-Growth Expectations

The Fed report shared that, since 2016, rural firms have consistently remained small averaging a minimal payroll (in 2024, 61% of rural businesses have just one to four workers). Increasing pressure on payroll costs, including health care benefits, may be contributing to a cautious hiring approach and escalating policy and economic uncertainty will likely tamper future hiring. And, this is of even greater concern in rural areas where retaining workers has always been a challenge.

3. Rural Businesses Struggle To Hire And Keep Workers

As the U.S. approaches the ripe old age of 250, the U.S. is home to an aging population that is gradually leaving the workforce, a challenge Japan, Europe and other developed countries have been navigating for years.

So, the competition for those who do remain working will only heighten and the relatively sparse job options in rural areas may put them at a disadvantage. This is why rural areas see higher levels of entrepreneurship, as residents feel compelled to create their own economic opportunities. The Center on Rural Innovation created a rural entrepreneurship index to measure the ecosystem for start ups and found pockets of innovation across Rural America.

4. Diverse Ownership Still Lags In Rural America

Rural areas across the U.S. are getting more diverse, but diversity in business continues to lag behind urban areas with fewer women and people of color owning companies. Yet, those are the same demographics that commonly lead start ups so rural entrepreneurs may be the most effective strategy to update Main Streets to better reflect the goods and services communities need in their local business area.

In an earlier piece , I emphasized the important role that immigrants play in the vitality of rural America’s sustainability and growth, particularly since they are more likely to be raising the young families that populate schools and will become the next generation’s workforce.

5. Non-Manufacturing Goods Drive Rural Business Growth

Rural businesses have consistently maintained a stronghold in the non- manufacturing sectors like construction, farming, warehousing, mining, and wholesale trade, and increasingly, tourism related services. This portfolio aligns with the hands-on, country life many perceive define rural economies, important to key U.S. supply chains, but also makes them particularly vulnerable to the trade, inflation and innovation dynamics in play. Tourism and the outdoor economy are gaining attention as sectors that could balance and counter the cyclical nature of the primary sectors rural areas were historically dependent on.

6. Financial Struggles Mount For Rural Business Owners

The Fed Report shared that just over half of rural small business owners noted economic hardship in 2016, but that number surged to 94% in 2024. Among reporting owners, the financial concerns shifted from paying operating expenses to rising costs, with a particular focus on wages, but those wages are the dollars needed to maintain local economies. So, job creation may still be a focus, but the heavy competition for workers and financial pressure to keep payroll under control may trigger adoption of labor saving technology by rural business owners. However, that counters the high-touch, personal reputation that many Main Street businesses want to retain with their neighbors.

7. Rural Firms Rely On Small Banks For Financing

In 2024, the Fed reported 60% of all rural small businesses worked with a small bank, compared to just 41% of urban businesses. So, small banks remain a cornerstone of rural communities, but many may struggle to survive in an era of consolidation.

Van Leuven and his co-authors found that metro areas generally have better access, but rural, agriculture-dependent communities are able to maintain their banks, particularly if their citizens are older and they invest in robust infrastructure, such as broadband. Still, access to credit is a concern for startups and business owners looking to grow.

8. Rural Businesses Have Good Credit But Struggle To Secure Loan

The good news is that many rural businesses have maintained strong credit profiles: over 65% of rural businesses were a low credit risk in 2024. Yet, despite their creditworthiness, 40% of rural small businesses either received partial or no funding. This may be a disconnect as less than a quarter of rural small businesses applied for a Small Business Administration loan, perhaps preferring to work with local banks and lenders. This may be an opportunity for the entrepreneurial ecosystem to be strengthened: a county with strong business entry rates but low venture capital activity might focus on connecting local founders to regional capital networks and have local banks in those conversations.

There is much to celebrate about Small Business, and for many Rural Areas, they will celebrate the United States’ 250th Birthday at a Main Street parade or with a BBQ at a rural fair or city park. Perhaps one of the gifts rural Americans will share with their communities is a renewed commitment to shop, bank or even start up a company locally.