Nigeria’s deal rooms are full but small businesses still can’t get credit

Billions of dollars are being structured and deployed into Nigeria each year for energy, infrastructure, finance, oil and gas and real estate. Yet the capital is largely bypassing small and medium businesses that account for most jobs and economic activity in the country.

Lenders and investors are favouring deals with established off-takers, verifiable collateral and contracts that fit existing project finance templates.

That leaves businesses such as a cold storage operator running on diesel, a rural clinic purchasing diagnostic equipment, and a smallholder farmer with land and demand without financing products designed for their risk profile.

The gap persists even as Nigeria pushes reforms to attract investment. With the Central Bank’s benchmark rate at 26.5 percent and banks requiring hard assets, SME owners say borrowing costs are prohibitive and loan requirements are out of reach.

“Many deals are simply built to ensure security and revenue. There are no systems that are built to assess the risks faced by small and medium enterprises,” said an analyst at a private equity firm who does not want his name mentioned on print.

According to him, the situation underscores the need for tailored financial products and risk assessment models for SMEs.

Industry groups including the Manufacturers Association of Nigeria have urged policymakers to create targeted credit schemes and guarantees, arguing that until finance reaches businesses outside the formal deal pipeline, Nigeria’s growth will remain concentrated at the top.

Femi Egbesola, president of the Association of Small Business Owners of Nigeria, said despite the contribution of SMEs to the country’s economic growth, they face substantial challenges in accessing adequate finance, which is stifling their potential and threatening their existence.

Egbesola explained that the country’s financial system is not designed to support SMEs, it’s designed to minimize risk for lenders. “We need financial products that understand the cash flow of our businesses, not just collateral,” he said.

“SMEs need specialised funds because traditional commercial bank loans feature high interest rates and rigid collateral rules that fail to match the cash flow realities of growing businesses,” he added.

He noted that investors are missing out on opportunities in Nigeria’s SME sector, saying “it’s a huge untapped potential.”

He urged the government to create incentives for lenders to serve SMEs, noting that it is crucial for economic growth and development.

SMEs face a myriad of problems. From the unfriendly business environment to the lack of accessible funding and weak infrastructure, Nigerian SMEs are constantly in need of governmental and the private sector support to thrive sustainably.