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Nigeria’s startup ecosystem is witnessing a growing shift towards debt financing as founders contend with tighter equity markets, longer fundraising cycles and increasing demands from investors.
The trend mirrors a broader development across Africa, where debt accounted for 41% of capital raised by technology startups in 2025, compared with 17% in 2019, according to Partech Africa’s annual venture capital report.
For Nigerian startups, however, the transition is still at an early stage. Industry participants say the increasing use of debt is being driven by a combination of stronger revenue visibility among mature businesses, tougher equity conditions and the emergence of local channels capable of directing naira capital into private credit.
Revenue Maturity Makes Debt More Viable
Babatunde Akin-Moses, founder of digital lender Sycamore, said the growing appetite for debt reflects the increasing financial maturity of African businesses.
Unlike equity, which requires founders to surrender part of their ownership, debt allows companies with sufficient cash flow to finance expansion while retaining control of their businesses.
But lenders, he noted, place greater emphasis on a company’s ability to repay than on the attractiveness of its growth story.
Akin-Moses pointed to Sycamore’s own commercial paper issuance as an example. Investors scrutinised the company’s business model, financial performance, loan-book quality, governance, growth strategy, liquidity management and ability to meet its obligations.
That process culminated in a N3 billion Series 1 commercial paper offer that was oversubscribed, with demand exceeding the initial offer by more than 230%.
However, he cautioned founders against treating access to debt as an achievement in itself.
According to him, borrowing only makes sense when a company’s business model can comfortably support both the cost of capital and the repayment schedule.
Equity Funding Becomes Slower, More Demanding
Temitope Ekundayo, co-founder of Lagos-based private capital platform GetEquity, believes the market is not necessarily witnessing a straightforward replacement of equity with debt.
Rather, he argues that the nature of equity financing is changing.
Dollar-denominated equity is still flowing into African businesses, but increasingly towards companies that have established revenues and stronger financial track records.
Fundraising processes that once took roughly eight weeks can now stretch to six months, with investors conducting substantially deeper due diligence.
At the same time, local capital has moved into the gap left by international investors, but some of this financing increasingly resembles debt despite being structured as equity.
Investors may demand collateral, guarantees, near-term profitability, board representation or personal guarantees from founders.
For Ekundayo, this reflects a fundamental change in the risk appetite of investors rather than simply a shift in founders’ preferences.
Debt Not Suitable for Early-Stage Startups
While debt can offer mature businesses a way to fund growth without diluting shareholders, industry participants warn that it remains poorly suited to startups without predictable income.
Ekundayo said repayment schedules, financing costs and the concentration of repayment risk on founders make debt particularly unsuitable for pre-revenue companies.
A business without established margins or dependable cash flow may struggle to meet fixed repayment obligations, leaving little room to absorb unexpected downturns.
Oluwaseyi Ayodeji, founder of AI infrastructure company Regal Stack, similarly identified business maturity as a major factor behind the rise of debt across Africa.
He said lenders can only comfortably provide debt when they have sufficient visibility into a company’s future revenues.
However, Ayodeji cautioned against automatically applying the broader African trend to Nigeria.
Naira Risk Creates a Nigerian Complication
Nigeria’s currency volatility introduces an additional layer of risk for companies considering debt.
Ayodeji pointed to the sharp depreciation of the naira between mid-2023 and late 2024, while noting that a significant portion of available startup debt is denominated in dollars.
This creates a potential mismatch for startups whose revenues are primarily earned in naira.
A company may therefore have sufficient revenue to support borrowing in principle but still face difficulties if its repayment obligations rise because of currency movements.
The experience of African mobility company Moove illustrates both the potential and limitations of debt financing.
Moove initially used relatively small debt facilities to finance vehicles before its revenue expanded to nearly $400 million in 2025, from $275 million the previous year.
The company also repaid approximately $100 million in earlier loans and was reportedly approaching a $1.2 billion debt financing round connected to its involvement in Alphabet’s Waymo robotaxi programme in the United States.
But Moove operates across multiple markets and generates a largely dollar-linked revenue base, making its financing circumstances different from those of startups dependent primarily on Nigerian naira revenues.
African Startup Debt Hits Record Share
Partech’s data shows how dramatically the African funding mix has changed.
Debt represented 17% of African technology funding in 2019 before rising to 24% in 2022 and 35% in 2023.
Its share slipped to 31% in 2024 but climbed sharply to 41% in 2025, when total African tech debt financing increased 63% year-on-year to $1.64 billion.
Overall African technology startup funding reached $4.1 billion in 2025.
However, more recent figures suggest the growth of debt should not be interpreted as a simple, uninterrupted shift away from equity.
African startups raised only $102 million across 44 disclosed transactions in July 2026, the weakest monthly performance since March 2025, according to Africa: The Big Deal.
Debt accounted for $75 million, or 74%, of that monthly total, while equity contributed just $25 million, its lowest monthly figure in more than seven years.
The debt figure was driven by four transactions: M-Kopa’s $30 million facility from development finance institution FMO, Bridgement’s $20 million financing, BioLite’s $11 million round and Nesa Power’s $9 million financing.
None of those transactions involved a Nigerian company.
Across the first seven months of 2026, African startup funding stood at $1.46 billion, down 27% from the same period a year earlier. Debt declined even more sharply, falling 44% to $529 million.
Western Africa, which includes Nigeria, attracted just $5.9 million in July, the lowest regional share for the month.
Nigeria Ranks Third in African Startup Debt
Nigeria’s position becomes more significant when the 2025 figures are examined.
Kenya led African debt financing with $498 million, followed by Egypt with $246 million. Nigeria ranked third with $160 million, representing a 132% year-on-year increase.
Despite the sharp increase, debt accounted for only 19% of Nigeria’s overall startup funding.
Equity financing moved in the opposite direction, declining 21% in 2025. Nigeria was the only one of Africa’s four largest startup markets to record a decline in equity funding during the year.
The figures point to a market where debt is expanding rapidly from a relatively small base while conventional equity financing is becoming harder to secure.
Local Capital Emerges as a New Funding Channel
Beyond changing founder preferences, market participants say the emergence of local private-credit channels could be one of the most important developments.
Ekundayo said domestic naira capital that previously had limited options beyond treasury bills and bank deposits can increasingly reach private businesses through new financial instruments and distribution networks.
This development could give Nigerian startups greater access to locally denominated financing while providing investors with alternatives to traditional low-risk instruments.
However, access is likely to remain closely linked to a startup’s financial maturity.
The Bottom Line
Nigeria’s growing reliance on startup debt does not necessarily signal the disappearance of equity financing.
Instead, the funding market appears to be separating companies according to their stage of development.
Businesses with predictable revenues, stronger governance and demonstrable repayment capacity are increasingly able to consider debt as a tool for expansion.
For earlier-stage and pre-revenue startups, the equation remains more difficult, particularly where borrowing costs, collateral requirements and currency risks are involved.
The broader shift suggests that Nigerian founders are operating in a more disciplined funding environment, where investors and lenders are placing greater emphasis on proven economics rather than growth potential alone.
As the market evolves, the key question may therefore be less about whether debt will replace equity and more about which type of capital is appropriate for each stage of a startup’s journey.
