Leveraging advisory services to bridge the SMEs funding gap in Ghana  

Introduction 

Small and Medium-sized Enterprises (SMEs) are essential to Ghana’s economy, driving innovation, creating jobs, and fostering development.   According to the Ministry of Finance in 2024, SMEs make up about 92% of all businesses and contribute roughly 70% of national GDP, underscoring their central role in output, jobs, and livelihood. Between 2014 and 2024, the number of business establishments increased from about 638 thousand in 2014 to 1.87 million in 2024, signaling strong entrepreneurial dynamism despite macroeconomic headwinds. However, their growth potential is hindered by significant funding gaps and the perception of risks associated with them. In Ghana, SMEs face challenges in securing the necessary funding for growth.  According to the 2023 World Bank Enterprise Survey, 40% of small and medium firms named access to finance as their biggest constraint. These issues often go beyond the internal weaknesses of these businesses; usually closely tied to broader economic factors such as high inflation, high interest rates, currency pressures, and bureaucratic funding processes. Furthermore, SMEs are frequently categorized as high-risk investments, creating systemic barriers that limit their access to capital.

Despite the presence of available investible capital, many SMEs struggle to meet the stringent requirements set by investors, leading to numerous missed opportunities for expansion. Should these challenges remain unaddressed, Ghana risks failing to fully harness its entrepreneurial potential. Closing this funding gap will require more than just financial resources; it will require tailored support, strategic guidance, and advisory services that equip SMEs to attract the right investors and achieve sustainable growth.

Understanding the Challenges and Opportunities 

The difficulty SMEs face in accessing finance stems not just from internal business limitations but also broader economic conditions.

1. Affordability. For many Ghanaian SMEs, the cost of credit, not merely its availability, is the binding constraint. With policy and reference rates transmitting into high commercial lending costs, coupled with collateral gaps overwhelming the thin margins they make. The Bank of Ghana’s policy rate was held at 21.5% as of September 2025, and the Ghana reference rate was 23.69% as of July 2025.
2. Access. Many SMEs cannot reach capital, even when they can afford it. Limited credit history, inadequate financial records, and informality of their business systems lock SMEs from accessing formal lenders and investors.
3. Inflationary pressures.  Persistently high inflation, though easing to 18.4% in May 2025, erodes SMEs’ purchasing power and compresses margins as input prices and operating costs rise faster than revenues. Higher and more volatile costs increase working-capital needs, elevate default risk, and weaken debt-service coverage. In response, lenders price more risk into loans and tighten credit standards, while SMEs face shrinking real collateral values and greater uncertainty in cash-flow forecasts, making both the cost and the terms of finance tougher.
4. Macroeconomic challenges. Currency volatility and shifting policy signals undermine planning, disrupt pricing, especially for import-reliant firms, and complicate cash-flow forecasting. These conditions heighten lenders’ risk perceptions and channel funds toward safer government treasury bills and bonds, crowding out private-sector credit.
5. SMEs constraint.  Weak financial records, limited collateral, informal governance, and unclear ownership or decision-making systems reduce investor confidence and slow credit approval even in normal times. This puts many investors in the position to choose the path of least resistance, leaving countless promising SMEs struggling to secure the capital they need to grow.  Strengthening bookkeeping, formalizing structures as outlined under the Companies Act, improving internal controls, and maintaining audit-ready statements directly may expand the pool of lenders and equity partners willing to engage with SMEs.

reinforcing a cycle of underinvestment and low growth.

1. Financial Institutions.

 Financial institutions, including banks, savings and loans, microfinance entities, and credit houses, serve as the primary formal financing sources for SMEs in Ghana. However, many small and medium-sized enterprises encounter significant barriers when trying to access credit. A major challenge is the requirement for collateral, which is set at 120% of the loan amount as per Section 62(9) of the Banks and Specialized Deposit-Taking Institutions Act, 2016 (Act 930). This high collateral requirement poses a substantial obstacle for most SMEs. Moreover, even if they manage to qualify for a loan, the high borrowing costs often render these loans unaffordable, effectively placing formal credit out of reach for many businesses in this sector.

• Private Equity (PE) and Venture Capital (VC).

Although Ghana’s investment landscape has seen some growth, venture capital and private equity remain largely underutilized by the average SME. According to a baseline report by the Ghana Venture Capital and Private Equity Association and Impact Investing Ghana, an average of only 8 VCs and PE deals are closed annually, with a striking 91.7% of these being tech startups. This focus on technology startups leaves out many SMEs operating in other essential sectors like agriculture, retail, and manufacturing. The core issue underlying the underutilization of private equity by average SMEs largely revolves around SMEs not being investment-ready based on VC and PE standards. Even though capital is technically available in the ecosystem, many SMEs remain locked out of these opportunities. 

• Informal Sources

With limited access to formal financing, many SMEs fall back on what they know and trust, that is, personal savings and loans from family and friends.  While these informal sources provide a vital financial lifeline and account for a significant portion of SME funding, they are often small, short-term, and unpredictable, making them unsuitable for long-term business growth.  But the deeper risk lies in Ghana’s broader economic environment. High inflation at 18.4% as of May 2025 continues to erode the real value of savings, making personal funds less dependable over time. Although the inflation rate is reported at a lower 8% as of October, the prevailing high inflation significantly impacts consumers and businesses alike. Therefore, in such times of elevated inflation, the cost of living rises rapidly, which puts additional pressure on household budgets.  Meanwhile, cedi depreciation increases the cost of imported goods, shrinking already thin margins for SMEs and making it even harder to stretch limited capital. Hence, relying on informal financing isn’t just unsustainable, it’s risky. Without scalable, affordable formal financing, many SMEs remain stuck in survival mode instead of scaling for growth. 

• Government Interventions and Donor Support

Over the years, Ghana’s government and development partners have launched several programs like the SME Growth and Opportunity Programme and the Youth in MSME Challenge Fund to support SMEs, but the truth is, many SMEs never significantly feel the impact. This is because too many businesses don’t even know these funds exist, and those who do often face frustrating paperwork, unclear processes, and long delays that discourage them from even applying. In addition, this widely available financing is mostly short-term loans with high interest rates, which does little to help the SMEs scale sustainably.  Development Finance Institutions (DFIs) also channel significant SME support through incubator programs. These hubs have played a critical role in bridging SME funding through mentorship, technical support, and seed capital, ultimately helping to de-risk early-stage businesses. However, bridging this gap does not just require pumping more money into the system; there is the need for coordinated efforts from banks, investors, DFIs, Incubator hubs, and especially advisors who can help prepare SMEs to become more investor-ready – i.e., to meet funding requirements and connect them to the right funding.

Regulatory Landscape Impacting SME Financing

Behind every funding opportunity or challenge lies a web of policies, regulations, and public initiatives – some helpful, others more of a hurdle. The policy and regulatory environment that shapes lending, investing, and business growth in Ghana includes.

1. Financial Sector Regulations. Designed for Stability: At the heart of Ghana’s financial system is the Bank of Ghana (BoG), which sets the tone for lending practices through regulations on risk, capital, and compliance. One example is the high capital adequacy requirements for banks meant to keep the financial sector safe, but this makes banks more cautious and risk-averse, especially when it comes to SMEs, who often lack formal financial structures. BoG’s policy rate, currently at 21.5% (September 2025), and the Ghana Reference Rate (GRR) of 23.69% (July 2025), also play a key role. It pushes up commercial interest rates, making borrowing expensive and unappealing for small businesses. The result? Banks tighten lending to SMEs and direct more funds into safer government securities instead. 
2. Credit Reporting. A Good Start but Needs Deeper Reach: The Credit Reporting Act of 2007 (Act 726) was established by Parliament to create a framework for credit bureaus and improve the way lenders assess borrowers, thereby enhancing transparency. The Bank of Ghana is responsible for licensing and supervising both the bureaus and the overall system. The act was further strengthened by the Credit Reporting Regulations of 2020 (L.I. 2394), which expanded mandatory participation in the Credit Reporting System. In theory, this should make it easier for creditworthy small and medium-sized enterprises (SMEs) to obtain loans. However, its effectiveness in practice is contingent upon proper enforcement and adequate data coverage.

• Governance Structure. Often overlooked: If you ask most SME owners about their major constraints to funding, they will likely say access to capital. But what often gets overlooked is a more fundamental issue: Governance structure. Before any bank loan or investor cheque comes into play, the foundation must be right, and that starts with a proper governance structure. In Ghana, formal registration under the Companies Act, 2019 (Act 992) is not optional. For any SME seeking private equity (PE), venture capital (VC), or institutional investment, a solid governance framework is non-negotiable. Investors want to see clarity in ownership, leadership roles, financial reporting, and decision-making. Without this, even the most promising business idea may be overlooked. The Securities Industry Act, 2016 (Act 929) and Ghana Investment Promotion Centre (GIPC) investor guidelines set expectations around transparency, governance, and reporting, all of which influence whether a business qualifies for funding, especially equity. PE and VC investors are not just looking to fund ideas; they are looking for partners with structured and scalable entities that can manage and grow the capital invested with an exit plan. 
• Tax and Trade Policies. Often Overlooked, But Highly Impactful: While tax and trade policies may not be directly linked to SME financing, they play a significant role in shaping a business’s ability to access funding. In Ghana, tax policy offers both opportunities and obstacles for SMEs. On the positive side, there are targeted incentives, such as tax holidays, which can help SMEs reinvest earnings and strengthen their financial standing when approaching lenders or investors. However, many SMEs either lack awareness of these benefits or struggle to access them due to limited advisory support or informal operations. 

On the trade front, SMEs involved in imports and exports face high costs from import duties, port fees, and levies, adding financial strain and often requiring short-term financing just to clear goods or manage stock. For exporters, delayed VAT refunds and limited access to export credit make it difficult to scale or secure working capital. While institutions like Ghana Export-Import Bank (GEXIM) offer support, SMEs must be well-structured and formally documented to be eligible. Ultimately, tax and trade policies directly influence an SME’s financial position, risk exposure, and attractiveness to financiers. Businesses that understand and leverage these policies, often with the help of financial and business advisors, are far more likely to access funding and grow sustainably than others.

How SMEs Can Leverage Advisory Services to Improve Access to Funding  

In Ghana’s evolving SME financing landscape, one thing is clear: access to capital is not just about knowing where to find it. It is more about identifying the right funding and being prepared to receive it. This is where advisory services step in. More than consultants, advisors are strategic partners who help businesses navigate complex funding challenges, prepare for investment, and structure their operations for long-term success. 

How they do it. 

1. Investor Readiness, Turning Ideas into Investable Businesses: Advisory services play a critical role in bridging the financing gap by preparing businesses to meet the rigorous standards of capital providers. One of the first steps involves financial structuring, which relates to designing an optimal capital mix that balances debt and equity, aligns with the SME’s cash flow profile, and supports long-term value creation. Advisors also conduct robust business valuations using internationally recognized methodologies, establishing a defensible basis for negotiation and investor engagement. Beyond that, the development of investment-grade information memoranda, teasers, and business plans, ensuring alignment with investor expectations in terms of clarity, risk disclosure, and growth potential. Through dynamic financial modeling, advisors simulate future performance, forecasting revenue streams, cost structures, and profitability scenarios. These models serve not only as internal decision-making tools but also as critical instruments for investor communication. In short, advisors transform SMEs into investment-ready entities by building the financial clarity, structural discipline, and strategic positioning necessary to attract and retain funding. 
2. Navigating the Regulatory Maze, From Roadblocks to Green Lights: The regulatory landscape in Ghana is essential for maintaining order and transparency, but it can often feel like a complex, lagging bureaucratic process with layers of requirements spanning tax compliance, licensing, company registration, and financial regulations set by regulatory bodies. For many small businesses, navigating these obligations can be a major distraction from day-to-day operations and long-term growth planning. Fortunately, Advisory firms play a vital role in demystifying these complicated processes. They provide SMEs with expert guidance on complying with key laws and help ensure their operations meet the expectations of lenders, regulators, and investors. Advisors also work to improve SMEs’ financial literacy and record-keeping practices, which are essential steps for building a credible financial profile. Additionally, they offer tailored support in preparing loan and grant applications to help SMEs identify and access specialized funding programs or targeted sector-based initiatives. In doing so, advisors not only streamline regulatory compliance; they also position SMEs to take full advantage of available funding opportunities and transform bureaucratic roadblocks into pathways for sustainable growth. 
3. De-risking the Deal, Building Investor Confidence: Investors do not just invest in businesses; they invest in confidence and that confidence begins with clarity. For many SMEs, this is where advisors become indispensable. Acting as both analysts and risk managers, advisors help SMEs identify and mitigate the risks that typically raise red flags for lenders and equity investors. From the onset, advisors strengthen internal controls and governance frameworks, align business operations with market realities, and guide the development of credible business plans and financial forecasts. These efforts significantly improve transparency and help SMEs build a profile that stands the test of scrutiny. On the other side of the table, advisors offer investors what they value most: visibility. With structured data, sound financial modeling, and robust documentation, they provide clear insights into the SME’s financial health and future performance, thereby increasing the likelihood of investment. This becomes especially critical during the due diligence phase, where advisors lead the charge in assessing past financial performance, operational resilience, competitive positioning, and potential regulatory or legal concerns. By laying this foundation, advisors not only de-risk the investment for funders; they also equip SMEs to face the investment process with greater confidence and readiness, making the deal smoother, faster, and far more likely to successfully close. 
4. Structuring Deals That Work for Everyone: Securing funding is not just about getting a “YES”. It is about securing the right deal on the right terms. This is where advisors bring significant value. They work closely with SMEs to structure investment deals that align the interests of the business with its potential funders. From determining the optimal financing mix, whether equity, debt, or hybrid, to setting realistic performance indicators, payment schedules, and growth milestones. Advisors ensure that deal terms are both attractive and sustainable. They also assist in negotiating key elements such as ownership percentages, exit strategies, and security provisions, while preparing SMEs for investor onboarding and post-investment governance responsibilities. A well-structured deal does not just improve the SME’s funding prospects, but also boosts investor confidence, reduces perceived risk, and lays the groundwork for a productive long-term partnership. Advisors maintain strong networks across banks, investors, and donor-funded programs, placing them in the unique position to open doors that SMEs would not be able to easily access on their own, thereby turning good preparation into real capital opportunities. 

Ghanaian SMEs have great potential but face a dual reality of macroeconomic challenges and firm-level gaps. Bridging the funding gap requires more than capital; it takes investor readiness, governance quality, credible numbers, and fit-for-purpose deal structuring. Advisors help SMEs convert this potential into investable propositions by sharpening financials, de-risking execution, and matching the right capital to the right stage.