How a System Like SBA Could Help African Continent

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Developing economies in Africa heavily rely on small businesses, which provide up to 85% of jobs on the continent. However, African small businesses get very little, if any, support from the government. In the times of the COVID-19 pandemic, their situation is outright dire. Creating an organization similar to the Small Business Administration in the US could help turn the situation around. The changes this could create will propel the development of the entire continent forward by decades.

What Is the SBA and Why Does It Matter?

The Small Business Administration, or SBA, is an agency in the US the sole focus of which is to help small businesses. Despite being sponsored by the government, the SBA is autonomous. Therefore, it can always put the needs of businesses first.

The main focus of the SBA activity is providing counsel and assistance to individuals who want to start a business. This means that a large part of its function is providing these individuals, as well as small business owners, with financing. SBA itself doesn’t offer loans, but it works with a variety of lenders. Eligible lenders are authorized to offer loans secured by the SBA and therefore the US government.

This type of financing designed specifically for small businesses, startups, and entrepreneurs. Therefore, it’s easier for them to get these loans compared to financing options offered by traditional banks. Loans from authorized sources, such as the U.S SBA lender OnDeck, have a variety of specialized benefits for businesses. First of all, it’s a public company, so all borrowers get a measure of security by default.

This type of lenders also offers a wide range of loans from 3 to 36 months. They can be easily adjusted to meet the needs of any business. OnDeck, in particular, offers specialized products, like Line of Credit or Unsecured Short-Term Loans that have no penalties for early repayments.

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All in all, the point of the SBA and eligible lenders it works with is to make sure every person with ambitions to open a business gets a chance to do it. The second priority of the SBA is to provide existing companies with the assistance they need to stay in business.

It’s the latter that the SBA is focusing on now. It works extremely hard to help businesses through the impact of the COVID-19 pandemic.

What Is the SBA Paycheck Protection Program?

One of the reasons why creating an organization like the SBA in African countries today is the role it plays in managing the fallout of the COVID-19 pandemic. This disaster hit small businesses extremely hard. They are left with no ability to operate and reduced or completely non-existent revenue. Therefore, they are unable to even keep up with the most essential expenses, like paychecks, rent, and utilities.

Lenders are no help for small businesses now. Because of the high risks, lending all but stopped. And the few options that are still available are payday loans with extremely high interest rates.

The US government is trying to deal with this problem through Paycheck Protection Program (PPP). This program is a loan backed by the government and distributed with the help of the SBA.

Eligible lenders are able to offer this type of loan to small business owners to encourage them to keep employees on the payroll. The money can also be used to cover rent or mortgage payments and utility bills. The SBA is, in essence, managing and administering this program. Therefore, it’s the direct link between small businesses and money they need to literally survive through the pandemic.

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It’s true that PPP isn’t perfect. In fact, there are many complaints about big companies using it to get bailouts. There is also the issue of the Program running out of money. It is already running on a second wave of government funding.

However, even with its limitations and some corruption, the PPP is a “life-saver” for millions of small businesses in the US. And a program like this would make even more of a difference for Africa.

How a PPP Analogue Could Change the African Continent

Small businesses are the lifeblood of economy. But in African countries, they face incredible challenges. The entire continent is seen as a very high-risk zone for lenders.

Financing small business is risky by default. The same is true for financing in Africa. Therefore, a lender must accept double risks. And with a poorly developed infrastructure and high level of poverty, a chance of the business succeeding isn’t high.

But the biggest problem that aspiring entrepreneurs in Africa have is that they have nowhere to go to for help. It’s not only a matter of financing. The majority of people on the continent are deprived of opportunities to get education and assistance with starting a business.

A specialized business financing program, and an organization that manages it fairly, would be a game-changer.

Small businesses create jobs as well as contribute a large portion of the GDP. This, in turn, leads to the increase in income and reduction in poverty. As a result of that, people start spending more, which brings even more money into the economy.

This is exactly how economies develop.

Therefore, creating conditions for this development is essential for African countries that want to ascend to the next level. From this point of view, creating and funding an organization similar to the SBA is the key to evolving the continent’s economy.

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Will There Ever Be an SBA for African Countries?

An organization completely dedicated to the support and promotion of small businesses in African countries seems to be only a dream for now. For one, it will require extensive funding. Sadly, many of these economies simply could not afford it at the moment.

Moreover, to run this type of organization successfully, the state needs to be transparent and uncorrupted. Unfortunately, many governments on the African continent do not meet these requirements.

All things considered, until the problems of government and money aren’t solved, small businesses have little hope. Ironically, providing those same businesses with support and financing would help solve those two problems. But that’s a hope for the future and incoming funding from overseas investors.

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