Problems Of Business Financing In Nigeria And Possible Solutions

Finance is the main focus of any business. In a given business set up, credit and money are usually employed to finance a business.

Finance is employed in any given business because it is utilized in the purchase of goods, assets and the raw materials for the easy flow of activities of the economy. From the explanation made so far, it can be summarized that a business finance literally means the provision of the fund at any given time needed by a given business.   



The capital which every business need is often required in a business at its beginning stage and operations. Finance is established for the purpose of any enterprise to expands in its size. The two classes of the business capital requirements are explained below;

    • Fixed capital divided into two, namely; current and a non-current asset.

Current Assets: For the initiation of any operational activities of a business, a fixed capital means fund invested in a diverse permanent or fixed asset which are essential for coordinating a business operation. Examples of these permanent assets that are normally static for over a period of time and also not withdrawal from the business at a precise notice are machinery, land, equipment, building, and others. Instead of changing the assets from a business at a precise time, it can easily be disposed of.  

Recurrent Assets: For the recurrent assets, it includes the patent right, long-term receivables, goodwill and copyrights which are all examples of non-current assets.


The discretion between the current liabilities of a business from its current assets in terms of a balance sheet is referred to as a working capital. The current assets here imply to a business asset which is easily turned into the fund just within a precise period of time, usually one year. It is made up of bills receivables, bank balances, inventories of stocks, cash in hand and then short-term investments.

Current liabilities, on the other hand, means those debts a business owner is required to clear off within a precise period which is usually one accounting year. This includes; short-term loans, dividends payable, bills payable, taxes payable, bank overdrafts and other ones.

Problems Of Business Financing In Nigeria


  1.    Wages payment.
  2.    Credit facilities provisions to their esteemed customers.
  3.    Circulating capital is used to buy more goods for the purpose of reselling it.
  4.    Raw material purchase.
  5.    Frequent important demands of the business.
  6.    Expenses for advertising meeting.


The financial risk is one of the major risks facing the owners of the business that operates his or her business here in Nigeria. The important period of any business in Nigeria is the first five years of operating any given business, and this period requires enough fund for it to succeed in this period.

The problems of business finance in Nigeria are discussed in five major headlines, and they are as follows;

  • 1. Inadequate Collateral Facilities:

Adequate collateral facilities greatly decrease risks to those that lenders it which is mostly the banks. Collateral is one of the fixed assets that have a place value. Collateral usually backs up the loan collected from the lenders whenever a company or business are faced with a financial difficulty which will lead them to bankruptcy. On a general note, lenders can only lend seventy-five percent as its low-to-value share. That is to say, in a condition of a falling market or for protection against depreciation, lenders will not give out beyond #75,000 for any collateral that is valued at a #100,000.

  • 2. Deficiency Of Working Capital:

This is the most tedious capital if one seeks beyond one-year expenditure though it is the most important capital of any given business set up. Without a working capital in a business, the day-to-day expenses of a business cannot be catered for. And usually, it is always hard to borrow such kind of capital from the bank because it does not come with any collateral back up.

  • 3. Too Many Debts:

Too many debts a business owner faces in his or her business leads to a bankruptcy potential. It can also lead to the problem of cash flow in a given business which implies that company lenders are not only focusing on an available opportunity but also on a problem of offsetting the bills with more debt.

  • 4. Unable To Afford Payments:

Unable to afford payments is another problem of business finance because the bank who is the lender will be left with a bad debt when there is a defaulted loan which is resulted because of the lack of cash flow.

  • 5. Need High Payment:

In order to get a business loan, a high down payment is usually needed because banks will want to know the business financial management indicator and its leadership ability.


Knowing the cause of any given problem aids in a big way to know how to tackle the problems.

The solutions for the financing of a given business especially the small businesses in Nigeria are;

  • 1. Mezzanine Financing:  

In order to reduce the requirements of a monthly payment, mezzanine financing utilizes the option of a nontraditional financing which consists of an extended term with a second position to decrease cash flow and down payment need.

  • 2. Non-Traditional Lenders:

These lenders usually banks are regarded as a unique interest lender.  These lenders can be real-estates special lenders which are for those that are into business or real estates or the economic development organization which is special lenders meant for the women in the business or the minority groups.

  • 3. Tax Credits:

In order to qualify for this type of financing of a business, the business owners need to discuss it more elaborately with his or her accountants.

  • 4. Equity Financing:

This type of financing comes either from sources of crowdfunding or from personal relationships.



In summarizing this write up on the topic; Problems of Business Financing in Nigeria and its possible Solutions, it is necessary that the government of Nigeria make available of credit institutions which their lending pattern will have a minimal rules and regulations so that the small businesses can easily obtain a loan from them for the smooth running of their businesses.

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