The objective of this study is to determine whether there are inadequacies in the rural financial markets of Virginia. The analysis is based on data from a survey of farm and non-farm small businesses, in five rural counties in Virginia. A Probit model is used to determine whether the financing difficulty encountered by small rural businesses is significantly determined by non-risk characteristics of users of capital and/or non-risk characteristics of local capital markets. Four variables representing different aspects of financing difficulty are used as the dependent variables in each of the four models used in this study. These variables are, loan denial and non-local financing reported by the survey respondents, opinions of survey respondents on the adequacy of local capital markets, and their expectations on future satisfaction with the performance of the local capital market.

Businesses' risk characteristics should be the only determinant of the financing difficulty faced by capital users. However, this analysis indicates that access to capital is determined by non-risk local businesses' and local financial market characteristics as well. Among the most influential non-risk characteristics are: firm size, number of non-local locations, number of competitors in the local market, form of ownership, size of local financial institutions, and local financial institutions' specialization in lending to small businesses. In addition there are large differences in the way financing needs are met in different economic sectors in rural areas. Non-agricultural businesses seem to have less access to financing compared to agricultural businesses.

Further, there is evidence that information in rural financial markets is not complete, and that the sources of information are limited. The evidence on availability of capital is mixed and insufficient to conclude that this is an issue in rural Virginia.

The results of the analysis are used to identify ways to increase the availability of cost efficient capital for new and small businesses in rural areas in Virginia. The recommendations include considerations on how to improve governmental presence in rural capital markets to provide or facilitate better access to capital.