For many Nigerian SMEs, the first thought when additional funding is required is often the same: approach a bank, speak to an investor, or look for a private individual willing to provide the money.
The capital market is rarely the first option. This is understandable as the market has traditionally been associated with large corporates, listed companies and sophisticated institutional investors.
The capital market has traditionally been associated with large corporates, listed companies and sophisticated institutional investors. On the Nigerian Stock Exchange (NGX), we have about 146 companies that are listed. Yet that perception is increasingly out of step with the financing needs of a growing Nigerian business ecosystem.
Yet, this perception is changing as Nigeria’s business ecosystem expands. MSMEs remain a significant driver of economic activity, contributing about half of Nigeria’s GDP and 84% of employment, according to data cited by the Minister of Industry, Trade and Investment in 2025. For many businesses, traditional bank financing may not always provide the most suitable funding structure. Shorter loan tenors, repayment obligations, interest costs and collateral requirements can limit the ability of otherwise viable businesses to secure sufficient funding for expansion and long-term growth.
At the same time, the Nigerian capital market provides more financing routes than many business owners realise. The NGX Growth Board is specifically designed for small-cap and growth-oriented companies seeking long-term capital, while the SEC’s framework now permits eligible private companies to issue debt securities to qualified investors, subject to prescribed conditions.
The opportunity, therefore, is not simply to get more SMEs onto the stock exchange. It is to get more SMEs thinking about capital strategically. And this starts with understanding what makes a capital raise successful in the first place.
A Capital Raise Is More Than Finding Someone with Money
One of the biggest mistakes companies make is treating fundraising as a search for money rather than a financing decision. A company may decide that it needs ₦1 billion, prepare a pitch presentation and begin speaking to potential investors. But the more important questions come before the pitch.
Why ₦1 billion?
Why now?
What exactly will the money finance?
How much of the funding is for growth and how much is simply plugging an existing cash-flow gap?
How quickly will the capital generate returns?
What happens if the expected growth takes twice as long?
And perhaps most importantly, what type of capital does the business actually need?
The answer could be equity, a term loan, a bond, commercial paper, a private debt placement or another structured solution. The right instrument depends on the company’s cash flows, leverage, growth profile, asset base, ownership objectives and ability to meet repayment obligations. The SEC itself highlights business planning, market research, appropriate security selection, financial projections, financial statements and risk disclosure as fundamental parts of the capital-raising process.
Yet these are precisely the areas businesses often overlook.
What Companies Often Overlook Before Raising Capital
▪ They Focus on the Amount, Not the Use of Proceeds: A common funding request sounds like this: “We need ₦2 billion to expand the business.” That is not a funding strategy. Investors want to understand what expansion means in financial terms. Is the money going into a new factory, additional inventory, technology, fleet expansion, a new branch network, an acquisition or refinancing of existing obligations? The distinction matters because each use of funds produces a different cash-flow profile. A factory may take years before generating sufficient returns, inventory may convert into cash within months and refinancing existing debt may improve liquidity without creating additional revenue at all. A credible capital raise therefore breaks the funding requirement into specific uses and links each use to an expected business outcome. This is where the use of proceeds becomes more than a section in a pitch deck. It is the bridge between the amount being raised and the economic value investors expect the capital to create.
▪ They Overestimate What the Business Is Worth: Valuation is another area where founder expectations and investor expectations can deviate sharply. A founder may value the company based on its future potential, years of effort invested in building it or revenue growth. However, investors will consider the company’s financial performance, comparable businesses, growth prospects, risk, cash-generation capacity and the return they require for deploying capital. An unrealistic valuation can make a fundraise difficult before negotiations even begin. This becomes particularly important for equity raises, where valuation determines how much ownership existing shareholders must give up. A company seeking ₦500 million at a ₦2 billion valuation is offering a very different ownership proposition from one seeking the same ₦500 million at a ₦5 billion valuation. Although the amount raised is the same, the economics are not. Companies should therefore model dilution before entering the market, rather than discovering its implications after receiving term sheets.
▪ They Raise for Growth Without Testing Their Cash Flow: Revenue growth does not automatically translate into cash. A business can be growing rapidly while still struggling to generate enough cash to service debt because customers pay slowly, inventory consumes cash or operating expenses rise ahead of revenue. This is especially important for debt capital. A company considering a ₦1 billion facility should not stop at asking whether it can afford the interest rate. It should ask whether its operating cash flow can comfortably service interest and principal under different scenarios. What happens if revenue is 15% below projection? What happens if receivables take another 60 days to collect? What happens if input costs rise? What happens if interest rates remain elevated for longer than expected? Capital raising is often presented using a base-case forecast. Investors, however, are also interested in what happens when the base case fails. A strong raise is therefore supported by sensitivity analysis, cash-flow stress testing and realistic downside scenarios.
▪ They Confuse Profit with Debt-Service Capacity: This is a particularly important issue for SMEs raising debt. A company can report a profit and still struggle to repay debt. EBITDA, EBIT and net income each tell part of the story, but none tells management whether there will actually be enough cash available when debt obligations fall due. This is why metrics such as Debt Service Coverage Ratio (DSCR), interest coverage, leverage and cash conversion become important. For example: DSCR = Net Operating Income ÷ Total Debt Service. A DSCR below 1.0x indicates that internally generated cash is insufficient to cover scheduled debt service. A business approaching the debt market needs to understand this capacity before asking investors to fund it. Similarly, leverage should be assessed relative to the stability of the business, not simply against a random target. A highly predictable business may be able to sustain more leverage than a recurring business with volatile cash flows.
▪ They Underestimate the Importance of Financial Statements: Some companies have strong businesses but weak financial reporting. Unreconciled accounts, inconsistent revenue recognition, unexplained related-party transactions, incomplete schedules, poor working-capital records and differences between management accounts and statutory accounts can quickly undermine investor confidence. This is particularly relevant when seeking capital-market financing, where investors and advisers need reliable information to conduct due diligence. The SEC’s capital-raising guidance explicitly identifies financial statements and appropriate offering documentation as part of the process, while NGX’s listing requirements include audited financial information and continuing reporting obligations. Financial reporting, therefore, should not become a last-minute exercise undertaken because a transaction is imminent. A company that wants to access institutional capital should already operate as though its financial information will be examined.
▪ They Forget That Governance Is Part of the Investment Case: Many SMEs are founder-led. That is not fundamentally a problem. The challenge begins when the business has no clear separation between the founder’s personal finances and the company’s finances, weak approval processes, undocumented related-party transactions or governance structures that depend entirely on one individual. Capital market investors are not simply investing in an idea. They are investing in an organisation. As businesses grow, governance becomes part of the risk assessment. This is one reason capital market participation can be transformative for SMEs, as preparing for external capital often forces the company to institutionalise processes that may previously have been informal. The NGX Growth Board, for example, includes corporate governance and continuing disclosure requirements alongside its market-access framework.
▪ They Do Not Think About Investor Suitability: Not every investor is suitable for every company. A business can have a good investment case and still approach the wrong pool of capital. An SME seeking long-term funding for a factory expansion should not necessarily structure its financing around investors looking for short-duration opportunities. Likewise, a business with highly predictable receivables may have different financing needs from a technology company investing heavily ahead of future growth. The question should therefore not simply be: “Who can give us the money?” It should be: “Who is naturally suited to the risk, return and tenor of our business?” This is one area where the capital market can be particularly useful because it connects companies with different categories of investors and financing structures.
The Capital Market Is Becoming More Accessible to Private Businesses
The traditional picture of the capital market is that a company must become a large public corporation before it can participate. Nigeria’s regulatory framework provides more distinction. The SEC’s 2025 rules on the issuance and allotment of private companies’ securities allow private companies to issue eligible debt instruments, including bonds, debentures and sukuk, to qualified investors, subject to the rules. A private company may undertake up to three debt-security issuances within a one-year period, with an aggregate amount not exceeding ₦15 billion under the specified framework. That creates an important middle ground for growing businesses. A company does not necessarily have to jump directly from bank borrowing to a public equity listing. It can consider structured capital-market debt as part of its growth journey, where appropriate. For SMEs seeking equity-market access, the NGX Growth Board was created specifically for small-cap and growth-oriented companies. NGX states that the board is intended to help such businesses raise long-term capital, stimulate growth and improve liquidity, with more relaxed entry criteria than its more established boards. This is important because it changes the conversation from “Is my company big enough for the capital market?” to “Is my company prepared enough for the capital market?” Those are two very different questions.
▪ What Happens After the Money Is Raised?
Another area companies routinely overlook is life after the transaction. Raising capital is often treated as the finish line. For investors, it is the beginning of the investment. Debt investors expect interest and principal to be paid according to agreed terms. Equity investors expect the company to execute its strategy and provide appropriate information. Listed companies face continuing disclosure and reporting obligations. NGX’s requirements, for example, include periodic financial reporting and ongoing corporate-governance obligations. Even where a company is privately funded, investors will want visibility into performance. This makes investor relations, financial reporting and management communication important components of the capital strategy. A company that spends six months convincing investors to provide capital but then struggles to communicate performance after the transaction has solved only half the problem.
▪ The Cost of Raising Capital Is More Than the Coupon or Dilution:
Another frequent oversight is focusing exclusively on the significant cost of capital. For debt, management may compare interest rates and conclude that one instrument is cheaper than another. For equity, the focus may be on the percentage of ownership being given up. But the true cost of capital can include legal fees, advisory fees, trustee fees, rating fees where applicable, listing or regulatory expenses, documentation expenses and the internal cost of preparing for the transaction. There is also the cost of restrictive terms. Debt financing may come with covenants governing leverage, additional borrowing, asset sales, dividend payments or other corporate actions. Equity financing may come with shareholder rights, board representation, reserved matters or dilution. The cheapest headline rate is not necessarily the cheapest financing structure once the entire economic package is considered.
The Biggest Shift SMEs Need to Make – Call to Action
The fundamental mistake is seeing capital raising as an event. A stronger approach is to see it as a capital strategy. A company should begin thinking about its financing structure well before it needs the money.
That means understanding its current leverage, future capital expenditure, working-capital cycle, expected growth, ownership objectives and likely financing requirements over the next three to five years. That approach also allows a company to choose the appropriate financing at each stage. Short-term working-capital needs may require short-term funding. Long-term assets should ideally be funded with longer-term capital. High-growth businesses may require equity to absorb early-stage volatility, while businesses with stable cash flows may be able to support more debt. The capital market becomes valuable because it expands this menu.
Why More Nigerian SMEs Should Consider It?
The argument for greater SME participation in the capital market is therefore not that the capital market should replace banks. Banks remain critical to the Nigerian economy. The argument is that businesses should not allow the limitations of one financing channel to define their growth strategy. Nigeria’s financing gap makes diversification increasingly important.
For the right SME, accessing the capital market can provide more than funding. It can bring stronger financial reporting, better governance, greater visibility, a broader investor base and a framework for institutional growth. But the market cannot compensate for a weak business model. A capital raise does not fix poor unit economics; it does not solve uncontrolled expenses; it does not make an unrealistic valuation reasonable; it does not turn inconsistent financial records into reliable information; instead, capital amplifies whatever already exists in the business.
That is why the most important question for an SME considering a capital raise may not be “How much can we raise?” It may be: “Are we structured well enough to receive, deploy and account for the capital we want to raise?”
That is the real anatomy of a successful capital raise. And as Nigeria’s businesses move from survival to scale, more SMEs may need to see the capital market not as an exclusive club for established companies, but as part of a broader financing ecosystem that becomes increasingly relevant as a business becomes more institutional, more transparent and more ambitious about growth.
Where BAS Capital Comes In: Structure First, Capital Follows
At BAS Capital, we see capital raising as more than a transaction. It is a strategic decision that can determine how a business funds its next stage of growth.
One of the biggest lessons from working with businesses seeking capital is that being in need of funding does not automatically make a company investment-ready. Before approaching the market, a business needs to be clear about how much capital it requires, why it needs it, which financing structure best suits its cash flows, what investors are being offered and how the capital will create value.
This is where the role of an investment-banking adviser becomes particularly important.
For an SME, this means the conversation does not have to begin with “Who can give us money?” It can begin with the more important question: “What is the most appropriate way to finance this business?”
That distinction matters. The value is not simply in putting a company in front of investors. It is in helping management determine how much to raise, which instrument fits the business, how the transaction should be structured and how to present the opportunity in a way the market can understand and invest in.
For an SME preparing for its next stage of growth, that difference matters. Because the right adviser does not just help you raise capital. It helps you raise the right capital.
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