Getting money in the country: Is there a liability of rurality facing SMEs?

Abstract

This paper examines the loan interest rates offered in rural versus urban locations to test whether a “liability of rurality” confronts rural SMEs. Using a fine grained rural-urban spatial classification system we test whether small firms located across the NUTS 3 areas of England face a rural interest rate “price penalty”. On average rural SMEs take out smaller loans and are less inclined to offer collateral than urban counterparts. Counterintuitively, our key finding is that rural firms benefit from lower average loan interest rates. Regional development funds need to extend their spatial horizons to address their lack of rural outreach.