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7 Challenges Of Small Businesses in Nigeria (+Probable Solutions)

Annually, a lot of people take a leap for the exit door, quitting their 9-5 jobs with the dream of being self-sufficient, starting their own business, being their own boss.

Usually unaware of the challenges of small businesses (and business in general), these huge numbers aspire to be entrepreneurs.

Sadly, only a few of them really take the time to know how to, in reality, start up a business.

To successfully start and grow a viable business in Nigeria, there are a lot of requirements that must be ticked off and lots of steps to be taken towards achieving the task.

The interest of in this article is to investigate the challenges of small businesses in a developing economy such as Nigeria, beaming the spotlight on why they’re unable to compete on the global economic stage by scaling into big enterprises and businesses.

The focus would be on the challenges faced by Nigerian small businesses in transitioning to medium and large companies that can compete nationally and internationally.

Admittedly, there are challenges and problems facing the small entrepreneurs and businesses in the Nigerian market.

Breaking down the grouping of businesses, we have the micro, small, medium, and large companies. The major differentiating factor is the number of staff employed by these businesses.

According to Europa Statistic explained website, micro enterprises employ fewer than 10 persons; small enterprises employ 10-49 persons; medium-sized enterprises 50-249 persons while large companies employ over 249 persons.

For a developing economy like Nigeria, small businesses play a key role in national development. Some of which is providing a source of employment to the unemployed, provision of the much-needed goods and services to many Nigerians thereby ensuring that even the lower class are reached.

Interestingly, despite their large number, 90% of Nigerian business contributes less than 10% to the nation’s GDP and this is a far cry from what is expected of them. This underperformance is rooted in the several challenges facing small businesses in Nigeria.

This under performance is rooted in the several challenges facing small businesses in Nigeria.

Let’s now look at the 7 challenges of small businesses in Nigeria

#1 Lack of Access to Funds

Many researchers have recognized the difficulty faced by small business owners in accessing credit in Nigeria.

This is a major challenge preventing this group of entrepreneurs from scaling their operations and becoming major players.

Generally, we can agree that inadequate financial services are one of the major challenges of small businesses responsible for the inability of small business owners to expand their business in Nigeria.

Most small businesses find it difficult accessing adequate financial services and business advisory services that are most needed, particularly in the growing stages of their business operations.

Factors responsible for this lack of access to funds is that most Nigerian banks are not interested in micro businesses and so do not have products and services tailored to meet the business needs of these class of entrepreneurs and so they tend to be cut off.

There is no financial inclusiveness in our banking system as a country, so most banks are interested in the big players who arguably need no funds as much as the small businesses do.

Startup capital and finance is a major if you’d start or grow your small business. It is needed for a wide range of things.

Banks are not willing to give startups and small businesses these finances because they do not have faith in them and feel they do not have enough experience to handle the funds.

Even when such startups or small businesses are fortunate to get a financial institution willing to assist them access funds, the issue of interest rates and collateral for the credit becomes a challenge and hindrance to getting the fund.

#2 Poor Infrastructure and High Cost of Doing Business

The Nigerian business environment lacks the basic infrastructure needed for small business development and survival.

Nigeria has well documented poor infrastructure, with the most significant, being the very limited power supply in the country, which, in turn, imposes a high cost of running small businesses.

Nigeria generates and distributes one of the lowest electricity per person in Africa.

Most businesses resort to generating their own power (running on generators, cost of buying fuel and diesel and servicing the generators and so on) which adds up business expenses.

The cost of doing business in Nigeria is relatively very high.

Depending on the nature of the business, almost all small business owners take full responsibility for running their business solely.

Apart from having to generate power (electricity) from alternative sources, they have to provide their own basic amenities like water, security, communication, transportation for their products among others.

You will have to provide water else you cannot operate, you have to handle your own security to avoid vandalism and the rest, and provide transportation for your goods.

Putting all these together is extremely cost effective for small businesses.

Lack of access roads also makes it difficult to access markets and source raw materials for businesses. It also hinders distribution of finished goods to the various towns in the country thereby reducing the size of available markets to businesses with a negative impact on the economy.

In addition, because of the instability of the naira, inflation rate also hits the high thereby impacting on the cost of raw materials and general operating cost of businesses.

The ultimate effect of these is that the burden of these costs is further passed down to final consumers and this can affect sales and patronage for the business.

#3 Difficult Regulatory Environment, Multiple Taxes, and Levies

In 2016, Nigeria ranked 169 out of 190 with regards to ease of doing business.

Key parameters in this index include dealing with permits, payment of taxes, registering a business, enforcing contracts among others.

These are all aspects of regulatory context and on all counts, Nigeria ranks very low, making it a major challenge for small businesses.

Many businesses have all folded up owing to issues of multiple taxations, levies, and payments from different bodies taxing these small business owners.

The bottlenecks surrounding registering small businesses have been very frustrating and discouraging for most small businesses.

The demand for kickbacks from prospective entrepreneurs to register their business has not also been helpful; same as getting permits to operate small businesses, which turns out to be so much of a big deal.

#4 Inconsistent Economic Policies

Most economic policies in Nigeria are unfavorable, and pose a major challenge to small businesses.

When policies that are favorable to small businesses are announced by the government, there’s hardly a follow up for implementation so these businesses never get to enjoy these policies geared towards promoting the small business sector.

Another negative side to this is the fact that most policies made are not followed through to the end.

An instance is when a policy is made and as the entrepreneurs brace up for the implementation, there is a total change of policy, bringing up a new one and abandoning the former thereby distorting plans of small businesses.  

This can also be very frustrating as in some cases the small businesses may have expended the little funds they have in a venture to meet the policy.

#5 Lack of Access to Qualified Manpower

Human resources are the most important asset of any business irrespective of the size.

The quality of human asset at your disposal as a business owner to a large extent impacts on the growth and success of your business.

That being the case, sadly, the quality of education in Nigeria is not as great as what is obtained in other developed parts of the world.

This leaves the business owner with the sad option of recruiting from the poor pool of human resources at his disposal making it impossible for the business to compete with other businesses who can source global manpower.

#6 Innovation

A self-inflicted challenge of small businesses is a lack of innovation and creativity.

Small business owners stick to old guide and old rulebooks, as it was in the beginning so it remains, sticking to the status quo.

In a developing society such as ours, most of these businesses do not try to create anything new, no innovation!

This is a major challenge of small businesses.

They cannot play on the global stage when those on that stage focus a whole lot on innovation.

Most small business owners get so used to the same culture that they do not try to think outside the box. Wanting to remain in their comfort zones and the fear for new challenges makes them redundant and out of vogue.

#7 Doing it Alone Syndrome

One negative attitude about most Nigerian entrepreneurs is the attitude of being secretive, doing it alone.

Take a look at successful economies and successful thriving businesses; they thrive on shared ideas, being open to information and learning, not being scared of your ideas being plagiarized and all that.

The mistakes some small business owners in Nigeria do, which, in turn, comes back to pose a challenge to their business is believing they can do everything by themselves and do not need any helpful advice from anyone.

Hence, they fail to to build a business team.

Initially it may seem a successful strategy but eventually, mistakes start setting in, you run out of ideas and you have shut out every avenue to improve your business.

You need others to make things work, opening up to sharing ideas can even give you business information you would never have had.

Probable Solutions for Challenges of Small Businesses

Moving away from the challenges small businesses face in a developing economy like Nigeria, are there ways we could go around these bottlenecks to position our small-scale businesses to compete favorably on the international stage?

Often times you hear people complain that the government hasn’t done anything to help startups, small businesses, or entrepreneurs in general.

The government has tried on several occasions to intervene and curb the challenges of small businesses, with a view to help them grow and expand.

Considering the role they play in the provision of employment with limited results, some of these initiatives include:

1 Access to Finance

The Central Bank of Nigeria introduced credit guidelines requiring commercial and merchant banks to allocate a percentage of their credit funds to small enterprises.

This is necessary because access to finance is one of the major challenges of small businesses.

There are also several developmental financial institutions and schemes established to support small businesses such as Bank of Industry and Nigerian Industrial Development Bank (NIDB),

There were also export incentives from the Nigerian Export-Import Bank (NEXIM) to stimulate export loan facilities to SMEs, and export duty draw-back schemes administered by the Nigerian Export Promotion Council (NEPC).

2 Capacity Building

The government has undertaken several capacity building initiatives to support budding small business owners, hence, envisioning to curb the challenge of small businesses as it relates to skills.

This capacity building effort is coordinated by the Small and Medium Enterprise Development Agency of Nigeria (SMEDAN)
It is not all gloomy for small businesses in Nigeria. Frankly, the challenges of small businesses are enormous.

At Bizintelng we appreciate the fact that there exist challenges facing our small-scale businesses, but we choose to approach the matter proactively.

That being said, understand that the government alone cannot do all the work, their efforts are appreciated though not nearly enough.

That being said, we proffer some suggestions on how small businesses can go around some of these challenges.

How Bizintelng Helps to Curb Challenges of Small Businesses

Accessing finance as a small business is a major challenge for small businesses.

Agreed, most commercial financial institutions do not trust small businesses with their funds.

Despite several efforts, the government is making on ensuring access to funds, realize that you can source fund for your business through other informal methods like we have earlier advised.

Funds from friends, relatives and also cultivating a savings culture can be of great help.

Bizintelng provides financial services to small businesses (click this link to access it) to help them grow their business and offer them financial inclusion, bridging the gap between the banked and unbanked in our developing economy.

As a startup or small business owner, also have it at the back of your mind that you can access funds for business easily if you have a sound and viable business idea.

Not even the government will fund a business idea that is not viable.

Successful companies seek to solve problems in the society and saving their customers money and time in the process, if your business idea doesn’t do that then you need to do a rethink of that idea, think about how to provide a solution and save your customers time and money in the process.

Government efforts should also be appreciated and supported to tackle most of these challenges.

While the government is playing its part in this, as a business owner you have your own role to play. For starters, take advantage of government efforts and initiatives to give you a better competitive edge.

Try to think outside the box; one challenge is that of qualified manpower, whereas there are initiatives for capacity building, have you taken such an advantage?

In curbing the numerous challenges of small business, it will be easier to tackle them if we understand that it will take a collective effort of both the government and those in the private sector to deal with the issues.

As the government makes efforts and create these initiatives, take part in the process.

As a small business owner, do not be scared to try new things. If you fail you would have learned a lesson from that failure.

Get out of your comfort zone, be innovative, take calculated risks to better position your business, strive to learn new things and keep the trend of what is happening in the economy your business is part of.

Explore every avenue to be in the know and up to date with events in the business and financial circle.

Seek for know-how, expand your knowledge base and take advantage of every opportunity to grow your business.


You think your business idea is good enough? Have you hit brick walls financing that business?

Are there questions on your mind as regards business issues you need answers to?

Realize that the challenges are as real as it gets, maybe more real than you most times admit, but those challenges can be surmounted and together we can brace the tides…

Reach out to, we have outstretched arms waiting to support you financially, and otherwise to start, manage, and grow your own business.