URBANA, Ill. – The rapid demise of the rural banking system is a cause of concern for many farmers and rural dwellers worried about the availability and accessibility of financial services. According to data from the Board of Governors of the Federal Reserve System, over 40 percent of rural counties lost bank branches between 2012 and 2017.

Gerald Mashange, of the University of Illinois Department of Agricultural and Consumer Economics, noted in a recent farmdoc DAILY article that compared to urban residents, rural Americans have a higher reliance on brick-and-mortar bank branches, along with more limited access to the internet and online banking options and a greater likelihood of residing in banking deserts.

“Furthermore, people living in rural areas are disproportionately affected by this trend, having to travel farther to access banking services,” Mashange said in his Sept. 27 report, “Changes in the Number of Commercial Bank Branches in Rural Areas.”

Mashange went on to say that between 1994 and 2023, nearly half of all non-metro counties experienced declines in bank branches, while only about 29 percent saw increases. “When examining population changes between 1990 and 2020, the three most rural Rural-Urban Continuum Codes (RUCCs) had the largest shares of counties experiencing population declines, with these shares increasing as rurality increased. The combination of declining bank branches and population in more rural counties highlights the headwinds these communities face in accessing essential financial services.”

The decline in the number of rural banks can be directly associated with the demise of the small, family farm, according to the Consumer Financial Protection Bureau (CFPB).

“Historically, agriculture has been a central economic pillar in rural communities. At the peak in 1935, there were 6.8 million farms in the U.S. but today there are only 2 million farms remaining while the total land being farmed has stayed largely the same. There are multiple complex economic and policy factors that have contributed to the decline in the number of farms, and those who are able to continue farming continue to face serious challenges,” the CFPB noted in an April 2022 report.

Due to the rural banking crisis, farmers who rely heavily on credit to buy seeds, fertilizer, machinery, livestock and other inputs from season to season are reporting limited access to lending on fair terms and ongoing discrimination against women and racial minorities, according to the CFPB. This can affect farmers disproportionately due to their dependence on loans from smaller community banks, which constitute 70 percent of agricultural lending from all commercial banks.

In addition, rural customers visit bank tellers at nearly double the rate of urban and suburban customers, the CFPB observed. “In 2019, nearly nine in 10 rural households visited a branch, and about four in 10 rural households visited 10 or more times each year, far more than their urban and suburban counterparts. Lower rates of high-speed internet access may explain part of this disparity, although additional research is necessary to fully understand the reasons why rural communities are more likely to visit bank tellers and branches, despite the fact that banks are often located further away from rural consumers,” the report stated.

In a new twist to the rural banking crisis, migration from urban to rural areas, spurred on by COVID-19, has led to a population boom in the countryside. According to a June 2024 report by Forbes, however, the shortage of banks and bankers makes it very difficult for rural communities and businesses to take advantage of the economic, social, educational and development opportunities brought on by the population bump. Jeremy Gilpin, president of Greater Commercial Lending, reported in Forbes that there is an avenue for rural residents to access much needed capital through the government without a banker’s assistance.

“Government-guaranteed loans can fill the capital void for businesses and organizations that know how to access them. These loans offer a viable solution to the hurdles rural areas are currently facing,” he said.

Gilpin was referring to government-guaranteed loan programs from the USDA, whose loan types include business and industry loans, renewable energy loans, community facility loans and water and environmental program loans. Eligible entities must be in rural areas and range from for-profits and nonprofits to cooperatives, federally recognized tribes, public bodies and individuals engaged in business activities, according to Gilpin.

“USDA funds can be used for many purposes, including business conversion, enlargement and modernization, purchase and installation of machinery, equipment, supplies and inventory, debt refinancing, and business and industrial acquisitions. In most programs, loan amounts can be quite significant,” Gilpin wrote in his Forbes article. “In addition to USDA loans, the Small Business Administration (SBA) offers several loan programs tailored to small businesses in rural (as well as urban) areas. While USDA loans can be relatively large, SBA loans cap around $5 million.”