By the time Abuja-based founders start looking for their first serious debt facility, many have already spent months hearing versions of the same answer: come back when you have three years of audited financials, meaningful collateral, and a path to profitability.
For companies at seed or Series A stage, those requirements are not financing criteria. They are an instruction to wait.
This is the central tension running through a new landscape study on debt financing for tech-enabled startups in Africa, published in February 2026 by FMO, the Dutch development bank, in partnership with Dalberg Advisors. The report draws on surveys of 57 companies and 21 financiers across ten African markets, plus 41 stakeholder interviews with lenders, ecosystem builders, and sector experts. Its findings are, depending on your vantage point, either encouraging or quietly alarming.
The headline number that needs unpacking
By the third quarter of 2025, venture debt in Africa reached $1.6bn — exceeding both the full-year 2024 venture debt total and the $1.4bn in venture capital raised over the same period.
That inversion is striking. In most developed startup markets, equity is the dominant source of early-stage capital, with debt following once a company has demonstrated cash flow stability. In Africa, the ratio has flipped. Venture debt now represents 38% of venture capital deal value on the continent — compared to 10% in India, 9% in Southeast Asia, and 28% in Latin America.
The FMO report is careful not to celebrate this figure. “The relatively high share of VD compared to VC across Africa suggests a material risk that debt is substituting equity,” it notes.
In other words: the growth in African startup debt may partly reflect not a maturing capital market, but a shortage of equity — forcing founders to reach for debt to fill a gap it was never designed to fill.
What founders actually want
The survey data on founder preferences is illuminating, and slightly uncomfortable to read.
Across the 57 companies surveyed, 59% cited avoiding dilution of ownership and control as a top-three reason for seeking debt. That is a legitimate preference. But the report finds it sits alongside a set of product demands that, taken together, describe something closer to equity than to commercially viable debt.
Founders across Kenya, Nigeria, Uganda, and Côte d’Ivoire consistently want four things: minimal or non-traditional collateral, tenors of three to five years or longer, interest rates below 10% in hard currency, and local currency disbursement to avoid foreign exchange exposure.
Each of those preferences is individually understandable. Combined, they describe a product that specialist lenders struggle to offer sustainably without concessional capital underpinning the structure.
The tenor issue is particularly telling. The report finds that 73% of surveyed companies sought tenors of more than two years, and 64% wanted more than three years — but only 26% indicated the debt was intended for long-term uses like capital expenditure or geographic expansion. The majority were seeking long tenors not because their underlying financing need required it, but because going through the process of securing debt is so time-consuming and draining that founders want to avoid repeating it for as long as possible.
That is a process problem dressed up as a product preference.
What lenders can and cannot do
A small cohort of specialist debt providers has emerged to serve this market. The report identifies four broad archetypes: high-return debt funds, concessional-return debt funds, receivables refinancing facilities, and a small number of tier-two banks with sector-specific mandates.
High-return debt funds, such as Mobilis Capital Partners and Cauris Finance, tend to focus on FinTechs and embedded lenders — companies that can pass higher pricing on to their own consumer or SME borrowers and whose cash flow cycles are short, predictable, and relatively easy to underwrite. Some are beginning to use API integration to assess companies with as little as one to two years of operating data and complete due diligence in under three months — a significant improvement on the six-to-nine month processes that remain standard elsewhere.
Concessional-return funds, such as Acumen’s Hardest-to-Reach Fund, accept lower financial returns in exchange for reaching companies in more difficult markets or sectors — AgriTech in the DRC, CleanTech in Uganda — where cash flows are seasonal, margins thin, and commercial lenders see little reason to engage. These funds require grant or philanthropic capital in their structure to make the economics work.
Receivables refinancing facilities, an emerging model being developed by players like Africa Frontier Capital and Bridgin, purchase discounted receivables from lending companies, using data-driven pricing to model default rates, currency risk, and capital controls. They can offer financing without requiring companies to pledge physical assets as collateral. The report suggests ticket sizes of $3m and above, though the model is still proving itself at scale.
What all of these providers share is a constraint that sits above them in the capital stack: most of the wholesale capital they can access to on-lend is denominated in hard currency — typically US dollars or euros. Companies want local currency. Lenders want to provide it. But the funding is not there to make it happen at scale, and hedging illiquid African currencies is expensive enough to make some structures unworkable.
“Debt providers are not able to provide products aligned to company debt needs sustainably, especially local currency loans, as capital is usually hard currency,” the report states plainly.
The gap that matters most
Despite the headline growth in venture debt, the financing gap the report is most concerned with sits in the $1m to $5m range — the ticket size where a company has outgrown philanthropic grants and enterprise support programmes, but has not yet reached the scale where larger debt funds or development finance institutions find the transaction economics attractive.
Below $1m, a reasonable ecosystem of grant funders, foundations, and enterprise support organisations exists. Above $5m, a broader set of commercial lenders will engage. Between those two points, the report identifies a small number of specialist funds and a limited number of opportunistic players willing to engage.
The gap is further sharpened by sector. FinTechs and embedded lenders have the most options; their margins can absorb higher pricing, their receivables make useful collateral, and their cash flows are easier to model. AgriTech and CleanTech companies — often working with smallholder farmers or low-income households, with seasonal revenues and long asset lives — have far fewer.
“AgriTech is widely viewed as particularly challenging,” the report notes, citing low return potential, seasonal receivables, and assets with productive lives that often exceed ten years.
Where the real barriers are
The report’s most important structural finding is that the constraints to scaling early-stage debt in Africa are not primarily located at the level of individual lenders or founders. They sit in the ecosystem itself.
Four structural barriers recur across the analysis. First, weak insolvency frameworks: in several markets, the cost of appointing a court administrator to recover collateral can exceed the value of the collateral itself. Second, nascent startup ecosystems: there are simply not enough investment-ready companies at any given moment to build the pipeline that specialist lenders need to deploy capital efficiently. Third, limited local currency wholesale funding: the capital that debt providers can raise to on-lend is almost entirely denominated in foreign currency. Fourth, constrained refinancing markets: regulatory uncertainty limits providers’ ability to securitise loan portfolios and recycle capital.
These are not problems that better-designed debt products can solve. They require changes in legal frameworks, capital market infrastructure, and the architecture of public development finance.
The report draws on comparisons with India, Mexico, and the United Kingdom to illustrate what enabling ecosystems look like in practice. The Indian Insolvency and Bankruptcy Code, introduced in 2016, increased out-of-court settlements by clarifying escalation pathways. Mexico’s Nacional Financiera provides free online financial literacy training to small businesses before they access credit lines, improving the quality of borrowers entering the pipeline. The UK’s British Business Bank was established after 2008 specifically to seed new debt funds and provide guarantees that brought commercial lenders back to the startup market.
In each case, the entry of banks at meaningful scale followed — and depended on — significant public risk-sharing. India’s Credit Guarantee Scheme for Startups offers financial institutions a 75–85% guarantee on loans up to the equivalent of $2.2m. The UK’s Enterprise Finance Guarantee covered 75% of loan value. Without those backstops, banks did not engage.
The implication for Africa is direct: expecting commercial banks to serve the early-stage market without equivalent public incentives is unrealistic in the near term. The report recommends partial credit guarantees and origination grants as the most practical mechanisms, citing Aceli Africa’s pilot of pooled first-loss reserves and per-loan origination incentives for agri-SME lenders as a model worth examining.
The equity problem underneath the debt problem
Running through the report is an observation that the authors do not quite state as bluntly as the data implies: the debt problem in African startup finance is partly a symptom of an equity problem.
When equity is scarce, founders use debt to fill the gap — for needs that equity is better suited to fund. This increases lender risk while offering limited upside. In more developed markets, lenders compensate for this imbalance through equity-linked instruments: term loans with warrants, which give the lender a share of upside if the company does well. These structures are uncommon in Africa, because without credible exit pathways for equity investors, the warrants have limited practical value.
The report’s seventh and final solution addresses this directly: strengthening early-stage equity finance, both primary and secondary, to unlock complementary debt. It points to specialist secondary vehicles — funds that acquire existing equity stakes in impact-focused companies to provide liquidity to early investors — as a mechanism for recycling capital and extending fund lifecycles, thereby expanding the equity ecosystem that early-stage debt depends on.
“Adequate equity capital is essential to ensure companies mature to a stage where debt is used for return-generating purposes rather than as a substitute for equity,” the report states.
That is a careful way of saying something more direct: until African startup founders have better access to appropriately priced equity, the debt market will keep being asked to do things it cannot sustainably do — and founders will keep chasing a product that does not quite exist.
What needs to happen
The report proposes seven solutions, which can be roughly grouped into two categories: things that can be done within the current ecosystem, and things that require changing the ecosystem itself.
In the near term, the practical entry points are capitalising and de-risking specialist debt funds through blended finance structures; validating concessional-return fund models with risk-tolerant anchor capital; and incentivising local banks with guarantees and origination grants to enter the early-stage segment. The report is realistic about bank participation: it will not happen at scale without high levels of risk coverage, and the process of claiming on guarantees needs to be simpler than it often currently is.
Over the medium to longer term, the priorities are legal and regulatory reform to enable securitisation and improve collateral enforcement; knowledge-sharing to help traditional lenders understand the actual risk-return profiles of early-stage debt; market-level technical assistance to improve company investment readiness and reduce search costs on both sides; and deeper equity markets to support the whole architecture.
None of this is straightforward. Most of it requires coordination between actors — development finance institutions, national development banks, philanthropic capital providers, regulators, and ecosystem builders — who have different mandates, different timelines, and different definitions of success.
The report does not pretend otherwise. What it does is map the terrain clearly enough that the choices become harder to avoid making.
The FMO Landscape Study on Debt Financing to Tech-enabled Startup and Scale-up Companies in Africa was developed in partnership with Dalberg Advisors and funded by the European Commission’s Investing in Young Businesses in Africa Market Creation Platform. It is available as an open resource.