• Africa’s startup debt is growing, but $1–$5M loans remain scarce—too big for grants and too small for big lenders to process.

• FMO–Dalberg (Feb 2026) says fixed legal/admin costs—like collateral registration fees—make mid-sized loans expensive and rare.

• Closing the gap requires guarantees, stronger insolvency rules, better data sharing, and more local-currency lending for scale-ups.

Borrowing is becoming an increasingly important part of startup financing in Africa, helping founders reduce dilution when raising equity is harder. But the market is still constrained by high costs and uneven supply. The weakest link sits in a specific band: loans between $1 million and $5 million.

According to an investigative report published in February 2026 by FMO, developed with Dalberg and supported by the EU-backed IYBA programme (Investing in Young Businesses in Africa), legal and administrative frictions push up borrowing costs—especially for smaller transactions. The report cites collateral-registration legal fees that can represent a meaningful share of a small loan’s value. Fixed costs like these make mid-sized loans less attractive for lenders and more expensive for startups.

A market “blind spot” between small capital and large tickets

That friction helps explain a structural gap. Below $1 million, grants, philanthropy, accelerators and seed instruments can still play a role. Above $5 million, development finance institutions and some banks begin to accept ticket sizes that fit their processes and approval costs. Between the two, supply is thin and fragmented, often limited to fintech or short-cycle models with several years of operating history and stable performance metrics.

A few early movers are active, but the report notes that the offer remains specialised. Some debt funds, such as Mobilis Capital Partners, tend to focus on companies with strong, recurring revenue. Other structures—such as receivables or portfolio-based facilities linked to players like Africa Frontier Capital (AFC) and Bridging—are closer to liquidity and asset management than broad startup lending. The net effect is limited coverage for non-financial sectors with longer revenue cycles, such as parts of agritech and cleantech.

What would make mid-sized startup loans viable?

FMO’s recommendations combine near-term steps and longer-term reforms. In the short run, the report argues for better-capitalised specialist lenders, more proven concessional vehicles that can finance non-financial startups, and stronger incentives for local banks to lend in local currency—especially through guarantees and support for origination costs.

Over the longer term, it calls for stronger insolvency and secured-lending frameworks, better sharing of performance data to reduce uncertainty, and market-wide technical assistance to improve startups’ financial readiness. The report also highlights a central tension: many founders seek debt to avoid dilution, while expecting conditions—low rates, long maturities, minimal collateral—that resemble equity-like risk taking.

To show what can unlock supply, the report points to emerging-market precedents. In India, insolvency reforms and public risk-sharing tools helped improve lender confidence. In Mexico, the development bank NAFIN used a public reverse-factoring platform to make invoices financeable and reduce information barriers. The takeaway is practical: a few targeted building blocks—legal predictability, risk-sharing mechanisms and financing infrastructure—can make mid-sized loans easier to offer and safer to use.

Idriss Linge