SMEs Grapple with Funding Issues as High Interest Rates Threaten Survival and Growth

Small and medium-sized enterprises (SMEs) in Nigeria are navigating one of the most challenging financial landscapes in over a decade, as soaring interest rates, tightening credit access, and rising operational costs threaten their growth, survival, and ability to create jobs.

Business owners across Lagos, Abuja, and Ibadan report that banks are increasingly reluctant to lend to smaller firms following the Central Bank of Nigeria’s (CBN) series of monetary policy hikes aimed at curbing inflation and stabilising the naira. For those fortunate enough to secure loans, annual interest rates now range between 28% and 35%, a burden many entrepreneurs describe as crippling.

“You go to the bank for help and come out with a burden. How do you survive when your loan interest alone can wipe out your entire profit?” said Kemi Adeola, owner of a mid-sized plastic packaging business in Lagos.

The CBN’s repeated increases in its benchmark Monetary Policy Rate have drawn praise from economists and foreign investors for stabilising prices, yet the unintended consequences are significant: commercial banks are prioritising low-risk clients and government securities, leaving SMEs starved of affordable credit.

The financing gap is particularly troubling as SMEs account for over 80% of employment in Nigeria and nearly 50% of GDP. According to the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN), more than 2 million SMEs have closed over the past five years, citing high financing costs and currency volatility as primary constraints.

“We are witnessing a silent crisis. Without timely intervention, Nigeria could face substantial job losses and reduced domestic production at a time when the economy needs both resilience and innovation,” warned Lagos-based economist Dr. Tunde Adebayor.

The pressure is compounded by rising input costs, including fuel, raw materials, and electricity, which push operational expenses beyond the reach of many small businesses. Ibrahim Danjuma, owner of a leather-goods factory in Kano, explained, “When you add power costs to high-interest loans, it becomes a losing battle. We need credit to grow, but borrowing at this rate could ruin us.” His company recently laid off 20 workers due to financial strain.

In response, some SMEs have turned to informal lenders, who demand faster repayment and charge even higher interest, while others rely on personal savings, pre-orders, or family support. A few tech-oriented startups have accessed equity financing, though such opportunities remain limited to major urban centers.

Government officials point to intervention funds from the Bank of Industry, efforts to stabilise foreign exchange markets, and initiatives to boost domestic production. Yet, many entrepreneurs argue that loan application processes are cumbersome, opaque, and benefit only a small fraction of applicants. “We hear about billions allocated for SMEs, but where is the access? Loans must reach the businesses that actually operate on the ground,” said fashion retailer Adaora Nwokolo in Lagos.

Analysts say a coordinated strategy is essential: stabilising macroeconomic conditions while shielding SMEs from prohibitive borrowing costs. Proposed measures include temporary interest rate caps for productive sectors, expanded credit guarantees, and scaled-up financial inclusion programmes.

Industry leaders stress that addressing the SME financing gap is crucial not only for business survival but also for Nigeria’s broader economic growth. “No nation has achieved industrialisation without supporting its small industries. Jobs, exports, and innovation depend on a healthy SME ecosystem,” said Chidinma Obi, chairman at Alaba International Market, Lagos.

Meanwhile, entrepreneurs remain resilient, navigating uncertainty while hoping for relief. Trader Musa Alli of Balogun Market reflects the perseverance of many: “We are hustlers. We are survivors. But even survivors need a little support sometimes.”