Some small and mid-sized businesses are ready to flourish with access to capital—but they can be hard to spot. Around the world, seven out of ten jobs are created by small businesses, and there’s a US $5.7 trillion financing gap between what these businesses need and what they can access in capital. The challenge for investors, funders, and policymakers looking to fill this gap and encourage job creation is finding the subset of small businesses that have the highest growth potential—those with both ambition and capacity. These “gazelle” businesses are often hidden in plain sight.

New tools can reveal high-potential entrepreneurs. Few small businesses in low- and middle-income countries have credit scores or collateral, making it hard to assess their growth potential. Non-traditional data like business plan competitions, community input, and personal characteristics of business owners, sometimes combined with machine learning, have been able to predict entrepreneurial success and growth. In Nigeria, a nationwide business plan competition that awarded grants boosted job creation, sales, and profits. In India, community members successfully identified high-potential entrepreneurs among their peers, and in Egypt, a machine learning tool using psychology-based data was effective.

The design of financing mechanisms affects how well businesses can use them to grow. Research shows that features like larger loan sizes, flexible repayment terms, revenue-sharing models, or in-kind grants and loans matter significantly for improving how many businesses take up financing offers, how they use them to make profitable business investments, and their resulting growth. 

When high-potential businesses gain access to capital, entire markets become more efficient and create better jobs. In contexts where businesses face real credit constraints, access to targeted financing has led to rapid rise in production, sales, and profits—suggesting high returns when financing is matched with growth-ready businesses. For example, after Brazil’s large-scale expansion of credit for small and mid-sized businesses, more capable firms took root, stayed in business longer, and grew faster, especially in places where financing was once out of reach. 

For some firms, bigger loans can have greater impact—but targeting is important. Flexible, higher-value financing can support both business growth and lender sustainability, if paired with better tools, like machine learning, to identify the businesses that are most likely to benefit from access to those loans. In Egypt, for example, giving loans four times larger than the usual size led to major profit gains among cautious business owners, who were predicted to be top performers by the targeting tool, while creating losses for other businesses who were overly optimistic. 

Both grants and loans can be effective at helping small and mid-sized businesses grow, but their effectiveness and cost-effectiveness depend on the context and the businesses they reach. Grants may be more appropriate for early-stage or informal businesses that lack access to credit or face urgent need for cash, and have shown large impacts in some settings. They often require higher subsidies, which can limit potential for scale.

Loans offer a more financially sustainable option—particularly for growth-ready firms with the capacity to repay—because funds can be recycled and reinvested. While average impacts of grants and loans on business outcomes are often similar, loans are more cost-effective when repayment is feasible. (This comparison refers to grants and loans targeting income growth among entrepreneurs; grants for social protection, like cash transfers, serve a different purpose and are often effective in improving people’s welfare.)

Evidence-informed design features can improve the return on investment for supporting small and growing businesses with access to finance. As noted above, features like larger loan sizes, flexible repayment terms (like adjusting repayment to match business income), revenue-sharing models, or in-kind grants and loans can improve take-up and business success.