In 2025, African tech reached a tipping point. For the first time, debt financing across the continent’s startup ecosystem surpassed the $1 billion mark, signaling a fundamental shift in how founders capitalize their balance sheets.
As equity becomes more expensive and harder to secure, many are looking toward debt — not as a last resort, but as a strategic tool. One of the primary architects of this shift is Trevor Gosling, co-founder of the South African fintech Lula.
Earlier this week, Lula announced a R340m ($21m) local-currency facility from the Dutch development bank, FMO. This raise brings the company’s recent lending firepower to over $70m, following a $35m Series B in 2023, a $10m IFC loan in late 2025 and a $4.7 million social bond raise in 2022.
Launch Base Africa caught up with Gosling, whose approach to debt is clinical. His advice for founders is blunt: most are doing it wrong.
1. Debt is not ‘Equity in Disguise’
The most common error, according to Gosling, is a failure to distinguish between the psychology of a VC and a lender.
“The biggest mistake founders make with debt is treating it like equity with a different label,” Gosling tells Launch Base Africa. “Debt is a product with very specific expectations around predictability, discipline, and downside protection. You need to approach it with that mindset.”
While equity investors buy into a 10-year vision of what a company could become, lenders are focused on the immediate reality of what the company is.
The two questions every founder must answer:
- Why are you raising this debt?
- What specific cash flows will service it?
“Lenders are not betting on your vision — they’re underwriting your ability to repay under stress,” Gosling explains. “The more you can demonstrate repeatable revenue, strong unit economics, and tight operational control, the more leverage you’ll have in the process.”
2. The Paradox of Timing: Raise when Strong
In the startup world, debt is often associated with “bridge rounds” or filling a cash gap when an equity raise stalls. Gosling argues this is the worst possible time to enter the debt market.
“Raise debt when you don’t urgently need it,” he advises. “If you approach lenders from a position of strength — with runway, data, and options — you’ll secure far better terms than if you’re filling a short-term cash gap.”
By raising from a position of power, Lula has been able to negotiate terms that prioritize flexibility over speed. Gosling urges founders to invest time upfront in understanding the “boring” parts of the deal: covenants, reporting requirements, and downside scenarios. “Debt can be a powerful accelerant, but only if it’s structured to support the business rather than constrain it,” he says.
3. Look Past the Interest Rate
Founders often obsess over the headline interest rate (the cost of capital), but Gosling insists that the “fine print” is where the actual risk — and value — lives.
- Covenant Flexibility: How much breathing room do you have if growth slows for a quarter?
- Reporting Intensity: Will the lender’s data requirements overwhelm your finance team?
- Lender Behavior: How does the firm act when performance deviates from projections?
“You’re choosing a long-term partner who will be inside your business during both good and difficult periods,” says Gosling. “Ask direct questions about how they’ve worked with companies through downturns or performance volatility — their answers will tell you a lot.”
Ultimately, he suggests that founders should optimize for trust, transparency, and adaptability, rather than just chasing the lowest interest rate.
4. The Local Currency Advantage
For African startups, debt has historically been a double-edged sword. Borrowing in USD or EUR to lend in a local currency like the South African Rand (ZAR) can be disastrous if the local currency devalues, as the cost of repayment spikes in real terms.
Lula’s latest R340m facility is structured in local currency, a move Gosling calls a “critical enabler.”
“It eliminates the volatility of exchange rate fluctuations, allowing us to provide stable, predictable, and sustainable lending rates to our customers.”
By securing ZAR-denominated debt, Lula avoids the high costs of currency hedging, allowing them to maintain margins while keeping loans affordable for small businesses.
From Lender to Neobank
Founded in 2014 by Gosling and Neil Welman, Lula (formerly Lulalend) spent a decade perfecting AI-driven credit scoring. While South Africa’s “big four” banks — which dominate the market — often require years of financial history and physical collateral, Lula makes decisions in hours using alternative data.
However, their latest evolution involves a partnership with Access Bank to launch a neobanking solution. This bundles business accounts with cash-flow management tools.
Strategic Impact of the FMO Raise:
- Data Advantage: By controlling the business bank account, Lula sees the daily financial health of a company, reducing lending risk.
- Social Impact: Under IFC and FMO agreements, Lula is committed to allocating 25% of proceeds to women-owned MSMEs.
- Financial Inclusion: Targeting “thin-file” borrowers — entrepreneurs with healthy cash flows but limited formal credit histories.
The Road Ahead
Lula is operating in a South African economy currently recovering from post-pandemic stagnation. The primary challenge will be maintaining low default rates as they scale into the “informal” or “micro” sectors, where cash flow can be as unpredictable as the weather.
However, with a cap table including Quona Capital, DEG, and Triodos, and a debt strategy built on “strength rather than desperation,” Lula has provided a blueprint for how the next generation of African tech can scale without selling the farm.