They say money follows opportunity, but if that were true, SMEs in Africa would be drowning in investment! Let’s say you’re an entrepreneur here in Africa. You have a brilliant business idea, a growing customer base, and a solid plan for scaling up. But you need funding to take things to the next level, so the search begins. You go to banks, venture capitalists (VCs), and even angel investors in need of funding.
Nine out of ten times, all you get is a, “You’re too small,” “You don’t fit our investment profile,” “Come back when you’ve grown.” Meanwhile, large-scale startups with deep connections and foreign backing are raising millions with ease.
This is the frustrating reality of SMEs in Africa. Despite making up over 90% of businesses on the continent and being responsible for about 50% of the total GDP in sub-Saharan countries, they receive only a fraction of available funding. In 2019, VCs poured over $2 billion into African startups yet SMEs, the backbone of Africa’s economy, saw less than 20% of that capital. The money is there, but it’s not reaching the businesses that need it most.
So, why is this happening? What are the real reasons behind this funding gap? And more importantly, how can African SMEs push past these obstacles to secure the capital they need to grow?
Who’s to Blame?
The truth is, there’s no single villain in this story. The struggle for SME funding in Africa is the result of a system that’s failing on multiple fronts. But let’s see the major contributors to this conundrum.
1. The Governments in Africa
If African governments truly prioritized SMEs, we won’t be having this conversation. Every year, our leaders roll out policies that claim to support small businesses, but in reality, these policies never get implemented. Factors like bureaucratic red tape, slow approval processes, and corruption make it incredibly difficult for SMEs to access funding.
Take Nigeria, for example. The government launched the MSME Survival Fund to help businesses recover from COVID-19. However, the delays, mismanagement, and unclear eligibility criteria prevented many SMEs in the country from seeing a single naira. In some countries, registering an SME can take so long, and without formal registration, banks and investors won’t even look your way.
Governments always talk big about supporting SMEs, but what SMEs in Africa truly need are simple policies, faster processing times, and the actual disbursement of funds.
2. The Banks in Africa
Someone needs to say it – ‘African banks aren’t built for African SMEs’. Because why should getting a loan as a small business owner feel like trying to win the lottery. Without any care, these banks throw around high interest rates, impossible collateral requirements, and endless paperwork, making it impossible for SMEs to get the capital they need.
Only 5.4% of bank loans in Africa go to SMEs. This means while banks claim to support small businesses, they’re busy favoring big corporations and already-established players.
These banks see SMEs as “risky investments.” They don’t want to lend money to businesses that might struggle with repayments. Some banks have launched SME-focused loan programs, but the reality is, most of them come with conditions that the average small business simply cannot meet.
We need alternative lending models, such as revenue-based financing, microloans, or flexible repayment structures, or else our SMEs will remain locked out of traditional banking.
3. Entrepreneur Support Organizations (ESOs)
ESOs like incubators, accelerators, and grant providers are supposed to help SMEs scale. And to be fair, many of them do. The problem is they tend to favor “high-growth” startups, particularly in tech.
That’s great if you’re a fintech startup in Lagos, but what if you’re running a manufacturing business in Accra? Or a logistics company in Nairobi? Traditional businesses, which make up the bulk of African SMEs, often get overlooked in favor of trendier, more scalable startups.
According to the London Stock Exchange Group, one of the biggest challenges for SMEs in Africa is visibility, many great businesses never even get noticed by investors because they don’t fit into the preferred mold.
ESOs need to broaden their reach. Tech startups aren’t all we have to offer. The actual businesses that drive African economies are in agriculture, manufacturing, retail, logistics, and more.
4. SMEs in Africa
The uncomfortable truth is that a lot of our SMEs aren’t ready for funding. Many small business owners don’t keep accurate financial records, have no clear business plan, and fail to prepare for investor scrutiny. That’s a problem.
Investors and banks don’t just throw money at businesses, they need proof that their money is going to good use. But too often, SMEs struggle with basic things like:
- Keeping track of expenses and revenue
- Separating personal and business finances
- Having a well-structured business model
- Understanding the actual amount, they need and why
A report from the Center for Strategic and International Studies found that many SMEs in Africa remain in the informal sector, thus limiting their access to formal financing.
Of course, this isn’t to say that SMEs are at fault for the whole funding crisis but if funding is already difficult to access, the least you can do is be fully prepared when the opportunity comes.
The Way Forward
As a SMEs owner in Africa, you must take charge of your business to get the funding you need. Below are little steps you can start taking to improve your chances.
1. Register your business
You’re more likely to attract investors and qualify for loans with a registered business with accurate financial records. Registration also gives your business legal protection and credibility. If you haven’t registered your business yet, now is the best time.
Government agencies and online registration platforms in many African countries have made the process easier than ever. Accounting software like QuickBooks can also help keep your finances organized.
2. Create a clear business plan
Investors are not only interested in your big ideas; they also want to know how you intend to bring these ideas to life and maximize them. A good business plan should outline your goals, how you’ll achieve them, and realistic financial projections.
If you’re not sure where to start, platforms like LivePlan can guide you through the process, while free business plan templates from sites like BPlans can give you a solid starting point.
3. Find other sources for your funding
Going to the Banks in Africa to secure loans can be tough, but that isn’t your only option. Consider microfinance institutions and crowdfunding platforms like Kiva or Kickstarter, as they often have more flexible requirements. Angel investors will always be a great option. Sites like AngelList can connect you with individuals looking to invest in promising ventures.
4. Join business support networks
You don’t have to figure everything out alone. A lot of Entrepreneur support organizations (ESOs) offer mentorship, training, and even funding opportunities. Networks like Afrilabs connect entrepreneurs to innovation hubs across Africa, while initiatives like the Tony Elumelu Foundation provide both funding and guidance to help SMEs grow. Surrounding yourself with the right support system can make a huge difference.
5. Improve your financial knowledge
You need to be able to understand and interpret your numbers. A business with good financial management is far more attractive to investors and lenders. If financial management isn’t your strong suit, you can outsource the role to a reliable accounting firm. And if you need help keeping track of your money, tools like Wave provide free accounting software designed for small businesses.
By taking these steps and using the right resources, you strengthen your business foundations and improve your chances of securing the funding you need. The journey isn’t always easy, but with the right strategy and support, it’s absolutely possible.
Take Action Now
The funding challenges facing African SMEs won’t disappear overnight, waiting around for things to change is not an option.
While governments, banks, and ESOs need to do better, so do the SMEs in Africa. The businesses that succeed aren’t just the ones with great ideas; they’re the ones that are prepared, persistent, and resourceful.
Do you need expert guidance to secure the funding your business deserves? Reach out to us at Mac Adebowale Professional Services for tailored support. Email us at emails@macadebowale.com or macadebowaleadvisory@gmail.com, and let’s get your business funded!
