Small businesses are part of everyday life across Africa. They run shops, farms, restaurants, transport services, technology companies and small factories. They provide livelihoods for millions of families and help keep local economies moving.
Yet many face the same problem when they want to grow: getting affordable finance.
A business may have customers and a promising product but still struggle to raise money to buy equipment, increase stock, employ more people or enter a new market.
The International Finance Corporation estimates the financing gap for micro, small and medium-sized enterprises in Sub-Saharan Africa at about $331 billion.
Why, then, is getting finance still so difficult?
Banks often see small businesses as risky
Before lending money, banks need to know whether a business can repay it.
Established companies can usually provide audited accounts, detailed financial records, assets and years of trading history. Many smaller businesses cannot.
Some keep limited records. Others mix personal and business finances or operate partly outside the formal economy. New businesses may simply not have been around long enough to build a strong credit history.
That leaves lenders with less information to judge whether a loan is safe.
The IFC identifies limited financial records, business plans and collateral among the reasons smaller businesses have traditionally struggled to obtain finance.
The result can become a difficult cycle: a business needs money to grow, but lenders want evidence of financial strength before providing it.
Collateral can shut businesses out
Another obstacle is what banks ask borrowers to provide as security.
Land and buildings have traditionally been preferred forms of collateral. But many entrepreneurs do not own property valuable enough to secure the loan they need.
They may still own useful assets- machinery, vehicles, livestock, crops, stock or money owed by customers.
The challenge is making those assets acceptable to lenders.
The World Bank has promoted collateral registries that allow businesses to use movable assets such as equipment, inventory and receivables to secure borrowing.
Several African countries have introduced such systems. Nigeria, for example, has an online collateral registry designed to allow borrowers to secure loans against movable assets including machinery, livestock and inventory.
Better collateral systems cannot remove lending risk, but they can give viable businesses without property another route to credit.
Getting a loan does not mean it is affordable
Access is only half of the problem. The price and length of a loan matter too.
A business operating on a small profit margin may qualify for credit but find the repayments too expensive. Short-term loans can also be unsuitable for businesses trying to buy machinery or make investments that will take years to generate returns.
This is why longer-term finance matters.
The African Development Bank supports local financial institutions with longer-term funding and technical assistance so they can increase lending to small and medium-sized businesses.
For an entrepreneur, the right finance is not simply money that is available. It must also be affordable and suitable for what the business is trying to achieve.
Informality makes financing harder
Africa’s informal economy provides work and income for millions of people, but operating informally can make borrowing more difficult.
A lender needs reliable information about sales, expenses, debts and cash flow. Businesses without proper accounts or clear financial records can struggle to provide that evidence.
Formal registration alone will not guarantee access to finance. But good bookkeeping, separate business accounts and a visible payment history can make it easier for lenders to understand how a company is performing.
Governments also have a role. Simpler registration systems, reliable credit information and effective commercial laws can reduce some of the uncertainty surrounding small-business lending.
Can fintech change the picture?
Technology is beginning to open new routes to finance.
Mobile money, digital payments and fintech platforms can create financial records for businesses that previously operated mainly in cash. With better data, lenders can assess transactions and cash flow rather than relying only on traditional credit histories.
The IFC says digital channels, data analysis and partnerships between banks and fintech companies are making it easier for financial institutions to serve smaller businesses.
But digital lending brings its own risks.
Quick access to credit is not automatically good finance. Expensive short-term digital loans can create new problems if businesses borrow more than they can repay.
The real opportunity is using technology to make responsible lending cheaper, faster and more accessible.
Closing the gap
There is no single solution to Africa’s small-business financing problem.
Banks need better ways to assess viable businesses. Governments can strengthen credit information and collateral systems. Entrepreneurs can improve financial records. Development institutions can also help lenders share risks and provide longer-term capital.
What Africa does not lack is entrepreneurial ambition.
The harder task is building financial systems that can recognise good businesses before they become large businesses.
Closing that gap would not guarantee that every company succeeds. Business will always involve risk.
But giving viable small businesses a fairer chance to finance growth could mean stronger companies, more investment and more jobs.
For a continent with a rapidly growing workforce, that matters far beyond the businesses themselves.
Facts first. Not frenzy.
