Why Are Business Loan Interest Rates Still High in Nigeria?

The CBN Cut Rates to 23%. Business Loans Can Still Cost Over 32%.

When the Central Bank of Nigeria (CBN) reduced its benchmark interest rate from 26.5% to 23% in September 2026, businesses had reason to expect some relief from borrowing costs.

But that wasn’t quite what happened. In the same month, (ThisDay) reported that the average maximum lending rate had climbed to 32.62%, compared with 29.20% in August.

That figure doesn’t mean every business is paying 32.62% on its loans. Banks charge different rates depending on the borrower and the terms of the facility. Still, it raises a question worth looking at: if the CBN has reduced its rate, why are businesses still finding it expensive to borrow?

Why Doesn’t a Lower CBN Rate Mean Cheaper Loans?

The CBN’s Monetary Policy Rate (MPR) influences the cost of money in the financial system. When it comes down, borrowing can become cheaper over time. Businesses may then find it easier to finance expansion, purchase equipment or meet working capital needs.

But the MPR is not the interest rate a bank must charge its customers.

Banks have their own costs to consider when lending. They also assess the financial position of each borrower before deciding what rate and repayment terms to offer. So, even after a rate cut, the cost of borrowing for a business may remain high.

There are a few reasons for this.

Why Business Loan Rates Remain High

Banks have their own costs to cover.

A bank’s lending rate is influenced by more than the CBN’s policy rate. It has to consider the cost of raising funds, operating expenses and the returns it expects from lending.

The borrower’s financial position also matters. A company with steady revenue, a good repayment record and well-kept financial statements may receive different terms from one with irregular income or several outstanding loans.

So, while a lower MPR can create room for cheaper lending, it doesn’t mean every business will benefit in the same way.

Lending to some businesses carries more risk

From a bank’s perspective, lending money always comes with the possibility that it may not be repaid on time.

A business may lose customers, experience a drop in sales or struggle with rising operating costs. These things can affect its ability to meet loan repayments.

Banks take such risks into account when deciding their lending terms and conditions. A business considered less likely to repay may be offered a higher interest rate, asked to provide additional security or turned down altogether.

This is one reason financial records matter. A business that can clearly show its revenue, expenses, existing debts and expected cash flow gives a lender a better picture of its ability to repay. It doesn’t guarantee approval, but it puts the business in a better position to have that conversation.

Changes in policy don’t reach every borrower at once

Even when the CBN changes its policy rate, banks may not immediately adjust the rates on all their existing loans.

Some facilities are tied to benchmarks and may be reviewed when those benchmarks change. Others have fixed pricing for an agreed period, meaning the borrower may not see any change until the loan is due for review or renewal.

This is also why two businesses can approach different banks around the same time and receive very different offers.

The interest rate isn’t the whole story

When comparing loans, it is easy to focus on the advertised interest rate. But that figure alone doesn’t tell you how much the borrowing will actually cost.

Consider a business looking to borrow ₦10 million. It receives two offers. The first has a slightly higher interest rate but a longer repayment period and a modest arrangement fee. The second advertises a lower rate but comes with a larger fee, a shorter repayment period and more demanding collateral requirements.

At first glance, the second offer looks cheaper. But the shorter repayment period could mean larger monthly instalments, while the additional fees increase the upfront cost.

The business needs to look beyond the headline rate. It should compare the total amount repayable, the repayment schedule and the other costs involved, then consider whether those payments fit its cash flow.

What Should a Business Do Before Taking a Loan?

High borrowing costs can make businesses rethink their plans, but that doesn’t mean every expansion or investment should be put on hold.

What matters is whether the business can comfortably manage the debt and whether the money being borrowed will serve a useful purpose.

Before accepting a loan, management should consider a few things:

* Be clear about why the money is needed. Borrowing to purchase equipment, increase production or finance a project with a realistic revenue opportunity is different from taking another loan just to keep up with recurring expenses.

* Look closely at cash flow. Work out when money is expected to come in, what the business needs to spend and when repayments will be due. A company can be profitable and still struggle to repay a loan if customers take too long to pay.

* Compare the full cost of borrowing. Ask about arrangement fees, collateral, repayment periods and other charges. Don’t make a decision based on the interest rate alone.

* Consider other financing options. Depending on the business and its needs, commercial paper, asset finance or invoice discounting may be worth exploring. These options have their own requirements and risks, so they should not automatically be treated as cheaper alternatives.

* Review existing loans. If current repayments are taking too much money away from daily operations, it may be worth discussing refinancing or revised repayment terms with lenders.

Should Businesses Wait for Interest Rates to Fall Further?

It depends on what the business is trying to achieve.

Waiting could make sense if a proposed loan is simply too expensive to manage. But putting every investment decision on hold also has its costs. A business could miss an opportunity to fulfil a major order, increase production or improve its operations.

Rather than making decisions based only on expectations of lower interest rates, management should look at the numbers. Will the investment generate enough income to cover the additional borrowing? Can the business still meet its obligations if sales fall below expectations? Will there be enough money left to pay staff, suppliers and other operating expenses?

If a project only makes financial sense on the assumption that borrowing will become cheaper in the near future, it may be worth reviewing the plan before committing to it.

The End2End Perspective

A reduction in the CBN’s policy rate is welcome, but businesses still have to deal with the actual terms banks are offering. For a company looking to borrow, what matters is not just whether interest rates are falling. It is whether the financing available makes sense for the business.

Understanding the full cost of a loan, knowing how much the company can realistically repay and choosing the right financing structure can make a significant difference.

At End2End Advisory, we work with businesses to assess their financing needs, review available funding options and consider how borrowing decisions fit into their wider financial plans.

Thinking about taking a business loan or concerned about the cost of your existing debt? Speak with End2End Advisory about reviewing your financing options before making your next move.