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Business Loan Basics for Small Business Owners! Major Elements one must Consider before Applying.

Business Loan Basics for Small Business Owners! Major Elements one must Consider before Applying.

Taking out a loan is one of the realities of running a small business and one of the most difficult decisions an entrepreneur will have to make. A small business loan is an important weapon in any businessman's toolbox, whether you want to expand your firm or merely stay in operation. To secure the loan, you'll usually need some type of collateral, which can be in the form of your company's assets like real estate, equipment, and so on. But that's not the only issue. There are a lot more things you should consider before taking out a Business Loan for your Small Business in the UAE. 

Thus in this blog, Dhanguard will thoroughly discuss the elements which you must consider before applying for a Business Loan, if you are a Small Business Owner in the UAE. So without any further ado, let’s learn!

Major Elements to Consider before Applying for Business Loan

Below mentioned are the important elements that you should consider before applying for a Business Loan for your Small Business in UAE- 

Proper Analysis

There should be a clear plan for the use of the cash that outlines how you will use the money to achieve not only growth but profitability as well. The borrower must prepare and analyze scenarios in order to fully comprehend the risk they are accepting.

The following elements must be considered while making a loan decision:

Consider the advantages and disadvantages of taking out a loan versus establishing equity: 

Both monetary and business obligations, as well as personal ideals and emotions, must be considered while making a decision. Many people prefer loans over stock because they don't want to risk losing control of their company, but is this the best approach to fund your company?

A track strong track record: 

Belief in your company is not a solid justification to take out a loan. Belief and enthusiasm for your company are essential, but they must be backed up by evidence that it will function in practice.

Examine how quickly your company can earn income to pay back the loan: 

Will the company's monthly repayments cause more cash flow problems in the future? Ideally, your company is already profitable enough to cover the monthly payments. Spend time learning about and focusing on the financials of your company. If you're not sure how to read or evaluate the accounts, get an expert to assist you.

Read More:Do You have to pay taxes while Purchasing Real Estate in Dubai?

Prior Consultation before getting the Loan

We recommend that you go to a private SME (small and medium-sized enterprise) loan company rather than a bank because they have cheaper fees and interest rates and may be able to provide you a better deal. 

  • Rushing to the first option can be an unwise decision and you can end up with high interest rates. 

  • The situation might be frightening at the time, particularly if someone lacks the discipline to manage their loans and payments. 

  • That's why we suggest taking prior consultation and making a list of all the options available, singling out the best option with your preferred interest rates.

Finalize your Loan only when you have Secure Business

We believe loans to be a better choice and a good idea, but only for trading enterprises that require cash flow to fulfill specific orders and have a confirmed secure business in hand, so the founder is not overworked.

We believe that it might become a little stressful for you if you are a service oriented solopreneur who has never had loans or credit cards on them. It may put a lot of mental strain on you to make the loan installments on time. You might have to take on clients that you are not particularly enthusiastic about at some point.

  • Consider this instance where you have a large team, office, a nice set of clients, and a large turnover when you took out a loan, but the loan payments, employee expenditures, and other expenses would eat into your profit margins.  After you pay off the loans, you switch your business strategy to boutique services. 

  • Therefore on paper, your turnover and operations may appear little because of the staff and clientele you chose. Even then, your profit margins will be significantly healthier now that you don't have any superfluous expenses or overheads

On the surface, success can be deceiving which means that organizations with enormous offices, several branches, and other outward appearances of success may appear to be very successful, but on paper, they may be doing okay and have large debts. "Even if one is self funded, the need for a loan may arise due to cash flow and payment conditions in the region ranging from 45 to 90 days. However, we strongly suggest you proceed with caution and ensure that you have at least three times the amount of secure enterprises to justify these figures.

Go through your Lender’s Requirements

We propose taking a lender's perspective on the situation. A lender must believe in your business plan and your ability to repay the loan." Prepare everything, including your previous business background, credit history, and a solid business strategy, as they may request access to your bank accounts.

  • You must have a well thought out plan for what to do with the funds before the loan is deposited into your bank account. Be specific about your objectives, such as scaling up or expanding your firm, establishing emergency funds, marketing, purchasing equipment and inventory, controlling cash flow, producing funds for the future, or refinancing or paying off previous debts.

  • We recommend putting the loan money in a different bank account from the main business account and allocating each dirham to a specific purpose. Set up recurring loan installments and keep cutting costs and sticking to your budget.

  • You should seek expert guidance before making a decision on the loan. Because short term debt always has a cost, balancing the risk versus benefit becomes crucial.

  • You want to make sure you acquire the cheapest financing possible for your company. Compare the many loan options before deciding on the one that best meets your finance requirements. Alternatively, get assistance from accountants, business networking peers, or someone you know who has taken out a loan, and conduct online study.

Loan for Growth, not Survival

Taking a systematic and forward-looking strategy to business growth is good for making the process less stressful and raising the possibilities of receiving funds. The financing alternatives available to you are directly influenced by your existing financial status. 

  • Make sure you understand why you need the loan, as well as when and how much you need it. Using a loan to fuel business growth is a good idea, but using it to survive is risky.

  • Evaluating your current business situation can help you determine whether you need to borrow right now, whether you are 'bankable' and in a position to receive the funding, or whether you should pursue alternative strategic initiatives to modify plans, or even postpone major initiatives and expansion plans.


Taking out a Business Loan for Your Small Business can be a smooth task if you move forward with patience and consider all the aspects up until the repayment of the loan. Dhanguard can help you with every step and guide you in the right direction so that you can abstain yourselves from ending up in an unwanted financial position. 

Thus, we hope this blog provided you with insightful information. For more information on other related aspects, feel free to check out our website as well or get in touch with our experts by visiting our Branch Office.

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Frequently Asked Questions

The bank of UAE provides flexible repayment option that can range from one to four years.

Yes, the application for loan can be rejected if the applicant has not provided the reason for such loan with proper documentation.

No, your application for loan will be rejected if you apply for Multiple Loan.

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