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Notes from the Field

How the Digital Divide Affects America’s Rural Small Businesses

Creating a healthy small business ecosystem can be difficult in rural areas where there are fewer resources available. By investing in expanding digital access and technical support resources, rural small businesses can get the support they need to overcome these challenges and grow.

The views expressed in this report are those of the author(s) and are not necessarily those of the Federal Reserve Bank of Cleveland or the Board of Governors of the Federal Reserve System.

At Policy Summit 2023: Communities Thriving in a Changing Economy, held in Cleveland this June, panelists in the breakout session “Rural Main Street—Time To Grow a Fresh Crop of Rural Small Businesses” discussed the challenges—such as access to a wired internet connection and attainment of digital skills—that rural small businesses face and the support these businesses need to overcome these challenges.

One panelist emphasized that a step toward achieving digital equity and inclusion is increasing access to broadband, which is a type of internet service that provides speeds of at least 25 megabits per second (Mbps) download and 3 Mbps upload. While most small businesses have access to broadband, millions of small businesses still lack sufficient access to meet their needs, especially in rural areas. According to the Federal Communications Commission’s (FCC) Broadband Deployment Report, 1 percent of urban Americans do not have access to broadband. In contrast, 17 percent of Americans in rural areas lack access to broadband.1

Supported by existing research, panelists pointed out that this gap in broadband access hinders the productivity of rural small businesses because having online sales can expand the customer base and boost revenue. Having reliable access to the internet can also reduce the cost of obtaining suppliers and make hiring workers more efficient. And specifically for the agriculture industry, a 2020 McKinsey study estimates that enhanced connectivity, which enables technology like livestock and crop monitoring, has the potential to improve North American agricultural output by 8.7 percent by 2030.

The FCC's current broadband minimum benchmark speed of 25 Mbps (established in 2015) is sufficient for most homes, but it is generally inadequate for many small businesses. BroadbandUSA asserts that small businesses with 1–5 employees require higher than 50 Mbps speeds to conduct tasks such as managing inventory, operating point-of-sale terminals, and coordinating shipping. The FCC’s 2021 report states that 2 percent of urban areas and 25 percent of rural areas do not have access to internet speeds of at least 50 Mbps.

Even further, according to Verizon, small businesses with more than 10 internet users at a time need at least 100 Mbps just to efficiently send emails, browse the internet, and download documents. In fact, in 2022, FCC Chair Jessica Rosenworcel proposed increasing the national broadband standard to 100 Mbps in order to capture the needs of current Americans. At the 100 Mbps benchmark speed, 2 percent of urban areas and 33 percent of rural areas lack access, which suggests that the drop-off in faster internet speeds is more severe in rural communities and demonstrates that how broadband is defined matters. Not only is the 25 Mbps metric likely inadequate for most small businesses, but this can also mask the extent to which rural small businesses are being left behind.

While some of these businesses may have broadband available to them, adopting technology can be difficult as well. Smaller businesses tend to be the ones that are more heavily burdened by technology problems. According to the Small Business Credit Survey (SBCS) 2022 Report on Employer Firms, 32 percent of urban small business owners with annual revenues of less than $100,000 experienced challenges with utilizing technology compared to 25 percent of their larger counterparts. Rural small businesses with annual revenues of less than $100,000 were especially prone to having trouble utilizing technology compared to their larger counterparts (42 percent and 25 percent respectively), suggesting that being rurally located magnifies the technological challenges faced by the smallest of small business.

Panelists at Policy Summit 2023 discussed that by further investing in broadband infrastructure and funding community resources for technical support, rural small businesses are more likely to thrive in their environment. A recent report conducted by the US Chamber of Commerce finds that these infrastructure and funding improvements lead to better adoption of digital tools by rural businesses, which could create an estimated 360,000 new full-time jobs and add more than $47 billion to the US economy per year.

Creating a healthy small business ecosystem can be difficult in rural areas where there are fewer resources available, and several existing federal programs are designed to help bridge the resourcing gap. To date, the USDA’s ReConnect Program has invested $4 billion to expand high-speed broadband infrastructure for rural customers, and the Infrastructure Investment and Jobs Act of 2021 has allocated $65 billion to broadband infrastructure deployment. By investing in expanding digital access and technical support resources, rural small businesses can get the support they need to overcome these challenges and grow. Future research could monitor the degree to which these federal investments are effectively used to increase internet adoption for rural small businesses.

  1. There are several data sources that measure American broadband access, each with different methodologies, implications, and limitations. For more information, read the Federal Reserve Bank of Richmond’s article on the complicated nature of defining broadband coverage. Return to 1