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Expert breaks down how a new form of PPP could infuse $144B into the small business sector

Dale Mathias, Co-Founder of Innovation Partners Africa, joins Yahoo Finance's Akiko Fujita to discuss the state of stimulus negotiations as pandemic concerns grow for small businesses across the country.

Video Transcript

AKIKO FUJITA: As many as one in 20 small businesses in the US face the prospect of closure without additional help from the federal government. That's according to numbers out from the International Franchisee Association. And our next guest is proposing a new form of PPP through a public-private partnership.

Let's bring in Dale Mathias. She is an Innovation Partners Africa co-founder. And Dale, it's good to talk to you today. We should preface this by saying that you actually helped develop the Build Act, which established this international development finance corporation. So you're coming at this from that perspective as well.

What are you seeing right now in terms of the hurt or the pain that we're seeing from small businesses and the potential to look outside of the box, especially with Congress dragging their feet on the stimulus?

DALE MATHIAS: Right. So, hi, Akiko. I think that the issue is that regardless of whether Congress wants to drag their feet or not-- and they should do some sort of rescue bill for the reasons you have just cited. This is a wall of pain that we're experiencing, and it will get worse in the future.

But apart from that, the US government cannot do everything that is needed. And nor should it try to because, frankly, what we have and what we don't have in this country and haven't had ever is a durable financial infrastructure that will allow small business to be financed properly.

And that's what we're talking about here, is something that is permanent and robust. So that, for instance, right now, if you're a small company and you want to get a loan from a bank, it's almost impossible. And if you want to go to the alternate sources, which would be formally the fintech lending institutions, those have turned out not to be sustainable models either.

So this is a huge problem. And to just look to the government would be extremely difficult because we've calculated that it would take to create-- there are about 11 million jobs that have not been replaced in this country. So to replace them will cost about $144 billion in over a year period.

So to do that, it will require some additional capital beyond probably what the government can do. And not all of it should be lending, quite frankly. A lot of it--

AKIKO FUJITA: And so Dale, specifically, you're proposing a US development corporation that draws capital from the private sector. Walk me through how exactly you think that would work and how that would address those millions of jobs you just pointed to that have already been lost.

DALE MATHIAS: Right. So the idea is to create an agency inside government. Because we really don't have anything within the US government which is focused on economic development. And whatever we do now has to be inclusive because we know how many Black and women and minority-owned companies have gone under.

So inclusiveness is of critical importance. What's really going to happen going forward is that people-- look, we have to ask the question, where are the jobs going to come from? What we're seeing is that this could be a jobless recovery. And so what that means is that big companies may not want a lot of the people back that they needed-- that they thought they needed.

And so, jobs are going to-- we're going to have to think about entrepreneurship. So this concept is to help US government bring in-- use its capital to catalyze private capital in a variety of different ways.

And in the past, what we've had is the Small Business Administration, which has basically been a program that piggybacked on the banking industry. We know the banking industry really is focused on larger companies. And we just saw that through the CARES Act, what happened to the CARES Act.

There are many other places that we can get capital for small businesses, and sources of capital-- many others. But we don't have the vehicles with which to do it. We don't have the structures. And really, it's the role of the US government to help set this up and then to bring in and catalyze this kind of capital.

AKIKO FUJITA: And Dale, very quickly, you've talked about the annual return on a potential agency like this, $144 billion. How do you get to that number?

DALE MATHIAS: So it's not a return. That's the amount of capital that is going to be necessary in order to rebuild 11 million jobs. That's the capital that's going to be needed in one year. So it's not really a return. It's job creation, the cost of job creation.

AKIKO FUJITA: How do you sell that, though?

DALE MATHIAS: Sorry, what did you say?

AKIKO FUJITA: How do you sell that? I mean, you know, you talk about private investors investing in what is essentially future of these small businesses. How do you sell that at a time when, you know, so many people are hurting financially right now?

DALE MATHIAS: Yes, so, you know, there are many sources of capital that can provide. Some of them are philanthropic, and some of them other large pools of capital that really basically need some incentives to participate. They may need government guarantees. They may need aggregated vehicles because they can't invest in individual deals. They may need aggregate vehicles that are guaranteed.

The US government probably needs to put some debt in and may possibly bond guarantees. And they need to-- very importantly, what we have is sort of green shoots of the sort of the channels that put the capital out to these small businesses.

Those green shoots are represented by community development finance institutions, smaller investment funds that are community based, and other entities like, for instance, these-- the fintech lending companies that use data analytics and other tech-based processes.

Those entities are critically important. We use most of them during the CARES Act. They need to be built up. They need to be made much more robust. The US government, they need to put some equity into some of those entities. And they need to provide technical assistance to build them up. And this will create, over a long run, a much more robust system for small business development.

Listen, small business has created, pre-COVID, about 40% to 50% of our economic output. We can't just let these companies fail. It's not-- it's going to represent total failure for our economy. So the question is--

AKIKO FUJITA: No question the small businesses need help in any form they can get it. And this is one other solution to add to the table here. Dale Mathias, great to talk to you. Appreciate your time today.

DALE MATHIAS: Thank you very much. Bye-bye.