Common Funding Pitfalls for Small Businesses in Nigeria

For Nigerian entrepreneurs, securing funding can be an important  step in growing a business. From borrowing from friends and family to applying for bank loans, there are multiple ways to raise capital. 

However, not all funding options are created equal. It’s essential to understand the risks and read the fine print before committing. 

Here are some common funding pitfalls that small businesses in Nigeria:

1. Payday Loans

Payday loans might seem like a quick solution for urgent cash needs, but they can be dangerous for small business owners. In Nigeria, some micro-lenders offer loans with short repayment periods and very high interest rates. 

Fees can escalate quickly, leaving you trapped in a cycle of debt. Always calculate the total cost of the loan before borrowing, and explore safer alternatives such as microfinance banks or cooperative societies.

2. Taking on Too Much Debt

It’s tempting to borrow large sums to fund growth, but too much debt can put your business at risk. Overborrowing can affect your ability to pay operational expenses, save for future investments, or even pay salaries. 

Before taking on any new loan, assess your current financial situation honestly. Know how much you can realistically repay without hurting your business.

3. Online Lenders and Fintech Platforms

The rise of fintech in Nigeria has made accessing loans faster and more convenient, with platforms like Carbon, Paylater, and Renmoney gaining popularity. However, not all online lenders are safe. 

Some charge extremely high interest rates or hidden penalties for late repayment. Always review the terms carefully, compare options, and choose lenders with transparent policies.