Across Nigeria, Small and Medium Enterprises (SMEs) are quietly shaping the nation’s economic future. From innovative tech startups in Lagos disrupting traditional business models to agro-processing hubs in Kano feeding local and export markets, and fashion brands in Aba redefining creativity and commerce — SMEs are the heartbeat of Nigeria’s economy. They create jobs, sustain families and fuel the kind of grassroots innovation that drives inclusive growth.

Yet, despite their dynamism, a stubborn obstacle continues to stand in their way: access to finance. For many entrepreneurs, the dream of scaling their businesses stalls not because they lack ambition or viable ideas, but because they are locked out of the formal credit system. Banks, wary of risk, often rely on rigid and traditional credit assessment models that place disproportionate weight on financial statements — profitability, cash flow, debt ratios and other “hard” figures.

For young enterprises, startups, or fast-growing SMEs, these numbers rarely tell the full story. A business might have strong demand, an innovative product and a visionary leadership team, yet still be deemed “too risky” simply because its balance sheet doesn’t tick all the boxes. As a result, many promising businesses are denied the capital they need to expand, innovate or compete.

This is why the recent establishment of the National Credit Guarantee Company (NCGC) by the Tinubu administration is more than a bureaucratic milestone — it represents a bold attempt to rewrite the rules of SME finance in Nigeria. By providing guarantees on SME loans, NCGC reduces the perceived risk for lenders, encouraging them to extend credit to businesses they might previously have overlooked. But beyond risk mitigation, the company’s creation signals a deeper, more strategic shift: a move toward smarter, more inclusive credit assessment that reflects the real-world dynamics of small business success.

Looking Beyond the Balance Sheet

For too long, SME credit assessments have been treated as a numbers game — a calculation of ratios, revenues and repayments. But as many financial analysts and industry studies have shown, those numbers, while important, only capture part of the story. The real drivers of a company’s ability to repay a loan often go beyond what appears on a balance sheet.

Research on SME credit models shows that the most accurate assessments happen when qualitative factors are integrated alongside traditional financial data. These non-financial indicators provide a more complete and forward-looking view of an enterprise’s potential. They include aspects such as:

• Management education and experience: Are the people running the business capable of navigating market cycles and strategic decisions?
• Quality of cooperation with lenders: Does the SME have a record of transparent communication and sound financial relationships?
• Accounting and internal controls: Are financial records accurate, timely and reliable?
• Strategic planning and operational discipline: Is there a clear roadmap for growth supported by strong internal governance?
• Market development and positioning: Is the business capturing market share or entering new segments?
• Modernity and capacity of equipment: Does the company have the infrastructure to meet growing demand?
• Human capital strength: Is the workforce adequate and skilled enough to sustain expansion?

The message for Nigeria is clear—a company’s story is more than its spreadsheet. A young business led by experienced managers with strong customer relationships and a clear growth plan may, in fact, represent a lower credit risk than an older company with impressive financials but weak leadership and poor strategic focus. Likewise, SMEs that demonstrate strong collaboration with their banks or operate in rapidly expanding markets often outperform those judged solely on historical financial results.

This shift in thinking is where the NCGC can make a transformative difference. By lowering the risk barrier for lenders, it opens the door to a more nuanced, human-centred approach to credit assessment — one that values potential as much as performance.