Nigerian SMEs pay heavy price as banks withhold credit

Faced with limited access to credit from traditional banks, Nigerian entrepreneurs are increasingly turning to online lenders, often paying interest rates as high as 50 percent to keep their businesses afloat.

For many Nigerian entrepreneurs, loyalty to traditional banks has yielded little reward. Despite operating business accounts for over a decade, many small and medium-sized enterprises (SMEs) find themselves denied access to loans when they need them most. In the absence of support from conventional banks, online lenders have emerged as an alternative — albeit at a steep cost. This growing reliance on online banks underscores a deeper crisis in Nigeria’s SME financing landscape.

Over a decade of loyalty, still no loan

For Ezenwammadu Buruzochukwu, CEO of Bewin Garments Industry and House of Bewin, the experience is personal. His company produces 3D polo shirts with a production capacity of 5,000 units per week. Yet despite over 10 years of banking with Access Bank — formerly Diamond Bank — he has been repeatedly denied credit. “They said I don’t have a Certificate of Occupancy,” he said. “Access Bank has shown me shege oooo.”

Desperate to fulfil client orders and keep operations afloat, Buruzochukwu turned to online lenders in late 2023. “One day, I just tapped the loan option, and boom!” he said. Since then, apps like Opay, Carbon, and Palmpay have become his primary financing sources. But the convenience comes at a steep price. “If Carbon gives you N1 million, you’re paying N1.58 million back in a month,” he explained. That’s a staggering 58 percent monthly interest rate. He now services multiple loans monthly, sometimes repaying up to N3 million.

Still, these loans haven’t led to business expansion. “It’s like sustaining my business, not growing it,” he said. One loan rejection cost him dearly — he had requested N5 million from Access Bank to purchase fabric priced at N350 per yard. The bank took weeks before it declined, and by the time he secured funds elsewhere, the price had spiked to N1,300. “Now the N6 million I’m supposed to make as profit is used to service loans,” he said.

Read also: Nigerian SMEs expect increased revenue from digital payments, innovations

Two decades with Zenith, still locked out

Samuel Udeji, another Nigerian entrepreneur and CEO of SAMUD Ventures Limited, which is into electrical contracts and supplies, shares a similar frustration. Despite running an account with Zenith Bank for over 20 years, he says the bank has never supported his business with a single loan. “Zenith Bank is the main financier of my clients, yet they can’t give me one naira to fund my business,” he said. Even worse, his clients insist on paying him through that same Zenith Bank account, making him feel trapped.

Udeji believes Nigerian banks have become too risk-averse, especially toward the manufacturing sector. “They only want to fund businesses they can predict within two months — quick returns, low risk. If you’re into long-term production, they are not ready for you,” he explained. He added that unless you have a strong relationship with an influential account officer, your case may never even reach management. “Some account officers are not bold enough to present your case,” he said. “If you’re not well known in society, they don’t listen.”

Analysts: Banks are playing it safe

While stories like these are disheartening, some analysts argue that the banks are simply acting within their risk framework. During a recent conversation on SME financing, Yinka Awosanya, Director, Research & Business Intelligence, at Businessfront Limited, offered a broader view. He explained that banks are structured to protect their funds. When asked if bankable entrepreneurs were truly included in the financial system, he said: “For the banks, it’s a case of making sure that they’ll be able to get their repayment back, which is why they say, okay, yes, you need collateral, you need this, you need that.”

According to Awosanya, banks treat salary earners and businesses differently because the latter face greater uncertainty. “The banks are in it for business,” he said. “And when businesses approach them for a loan, it’s about showing you have the capacity to repay, with the right documentation and security.”

Adding to that, Olumide Adesina, Financial Market Analyst, offered deeper context using market data. “Would you really blame the banks?” he asked. “Non-performing loans are around 4.3 percent, dropping to 3.8 percent. FX devaluation of 43 percent hit them hard. Some banks were even delisted due to toxic loan exposure.” He explained that banks have grown more selective, focusing on certain sectors — Zenith on oil and gas, First Bank on agriculture, Stanbic IBTC on real estate. “Each bank has its own profile,” he said, “just like you can’t approach an Igbo woman the same way you’d approach a Yoruba woman — banks respond differently based on their risk appetite.”

Adesina emphasised that relationship-building, financial transparency, and proper documentation are essential to gaining access to loans. “People think banking is just about going to collect money. No. Is the business properly registered? Are you paying taxes? Are your transactions captured?”

A growing credit divide

Buruzochukwu, however, remains unconvinced. “I have all the machines, I have clients, and yet I get nothing from the banks,” he said. “I’ve chosen a path with online banks — not because they are better, but because they are there when you need them.”

His story reflects a growing divide in Nigeria’s credit system — one where traditional banks prioritise caution, and entrepreneurs pay the price for speed elsewhere.

Read also: Five factors to influence success of Nigerian SMEs in 2025

Looking beyond loans: The equity gap

Still, Buruzochukwu’s experience also reveals a deeper issue: many entrepreneurs are unaware of alternative financing options beyond debt. When Kalu Aja, a financial analyst, asked whether he had ever considered selling shares or seeking equity investors. His answer was telling.

“I don’t know how it works,” Buruzochukwu admitted. “I’m running this business as my passion, and I support a lot of people — workers, apprentices, families. But if there’s a way we can make it bigger, I’m ready to share the idea with people.”

This highlights a critical gap, not just in financing, but in education around financing models. Many SMEs in Nigeria are run by committed, resourceful entrepreneurs who simply haven’t been exposed to the concept of equity or how to navigate it. This is where investment banks, financial advisors, and even regulators must step up by designing targeted outreach and practical investment support for long-standing businesses with growth potential.

While debt remains the dominant form of funding, especially from costly online lenders, equity could offer a path to sustainability — if only more entrepreneurs knew it existed and how to access it.