Business Loan for Start-ups in UAE – What all you Need to Know

By Sakshi Srivastav - 01 Sep 2021 Last Updated: 22 Oct 2021
Business Loan for Start-ups in UAE – What all you Need to Know

The United Arab Emirates is a land brimming with prospects for entrepreneurs to launch their businesses. If someone wants to start a business outside of their native nation, the United Arab Emirates is one of the first place that springs to mind. The UAE is ranked 17th in the World Bank's Ease of Doing Business Report 2021. This is due to the Government's development of unrivalled infrastructure, a rich and diversified culture, and a business environment that have all had a favourable impact on the economy.

Due to its strong financial system, Dubai, the UAE's commercial hub, is a popular international investment location. It is not difficult for banks in Dubai to provide financial assistance to entrepreneurs in the form of business loans.

But when it comes to small and medium enterprises (SME) the Banks in UAE have adopted the policy of risk aversion. According to the UAE Ministry of Economy, the small-and-medium enterprises (SME) sector employs more than 86 percent of the private sector's workforce and accounts for more than 94 percent of the total number of companies operating in the country. Traditional lenders, on the other hand, are sometimes hesitant or unwilling to help SMEs due to their small assets or lack of a proven record of company operations. This makes it difficult for SMEs to do business, and financing options might be costly or inflexible as a result. SME loans account for only 4% of total outstanding bank credit in the UAE, well below the MENA average of 9.3%. But things are changing gradually and Banks have started paying the small-business sector more attention over the past six years, lured by the promise of higher returns. There are lot more products for these companies now.

Business Loan

It is an unsecured loan taken by an individual or entity from a bank or a non-banking financial company (NBFC) on the basis of his business income to meet their business financial needs. A business loan is a lifeline for those who are struggling with liquidity issue, financial sickness, and working capital. It also helps business to expand and open new business line etc. There are many types of business loan, which can be suggested according to the requirement and availability.

Almost all major banks in the UAE provide attractive lending options for start-ups and entrepreneurs. Any bank where you have a current account, as well as new banks, can offer you a number of possibilities. Flexible payment plans ranging from a few months to two years are available.

Eligibility Criteria

You must know whether or not you are eligible for a bank loan. Not every bank has policies that are tailored to your specific need. Instead, each have their own set of eligibility requirements. Most significantly, before approving a loan, banks examine the nature of the firm and the directors/partners/shareholders' profiles. Banks assess their risk in the sector by looking at how well-established it is, how long it has been in business, and what assets it has.

The most common requirements are: -

  •  A company should be minimum 1 yr old.
  •  There should be a business set-up.
  •  There should be an active company account.

Few General things which Bank looks while reviewing the Application

General things which Bank looks

Cash Flow

In the day-to-day operations of a business, cash flow is frequently overlooked. Banks, on the other hand, pay close attention to a company's cash flow during normal operations. This is because it is a reliable measure of a company's financial well-being. 

Knowledge

Business owners and management must possess extensive professional knowledge. Banks frequently note that SMEs and startups lack appropriate expertise of the sector or field in which they operate. In addition, a lack of experience in the industry is a source of concern. As a result, it is critical for the entity's management to demonstrate that they have the necessary experience and skills to ensure the enterprise's success.

Business Plan

Another crucial component is the business plan. This may seem self-evident, but a well-organized and well-written business plan is critical to receiving a loan. The business plan will be scrutinised by the banks to see if the company has a clear vision and reasonable expectations for success. A weak business plan can cause your application to be denied, even if it is immaculate and fits all of the standards.

Corporate Governance

Corporate governance is a crucial predictor of a company's riskiness. Banks consider corporations that lack a well-structured corporate governance system to be risky. As a result, having a corporate governance framework in place is critical; it must be solid, and you must be able to demonstrate it to banks.

Transparency

When dealing with banks, it's also crucial to remember that transparency and excellent communication are essential. Don't be scared to speak up about anything, even if it's a business issue. This will enable the bank to be informed of any circumstances, preventing concerns from arising unexpectedly in the future.

Mandatory Documents

  • Trade license

The trade licence is a permit issued by the UAE government to investors allowing them to conduct business. Every trade has its own set of trade permits, which vary depending on the nature of your firm. The price for a trade licence would range from AED 3,900 to AED 183,000. The majority of business people prefer a general trade licence, which may be used to conduct business in a variety of commodities. The trade licence is advantageous not only for business loans, but also for other types of loans in the UAE, such as personal loans, home loans, and auto loans. For self-employed people, a trade licence is a crucial document.

  •  A valid copy of Passport, Resident visa, and Emirates ID of all the partners. 
  •  MOA or AOA.
  •  12 months bank statement of the company account.
  •  Tenancy Contract.
  •  3-5 Sales and purchase vouchers.

Bank Loan to SMEs

SME interest rates are usually lower (Small and Medium Enterprises). SMEs make a significant contribution to the UAE's economy. Banks and other financial institutions recognise the importance of SMEs and provide business loans to them.

The criteria for obtaining a business loan for a small business are not fixed entirely.

  • Business of the client and the industry he is operating in.
  • Historical performance
  • Financing or risk alleviation needs vs. what has already been sourced
  • Plans of client regarding future of business

Amongst all the factors in determining loan amount, most important is turnover. Business’s bank account and audited financial statements depict the turnover of company.

Government initiatives such as the Khalifa Fund for Enterprise Development and the Mohammed Bin Rashid Fund for SME can help UAE-based SMEs get finance. As a result, in June 2007, the Khalifa Fund was established to aid in the development of local businesses in Abu Dhabi. The Khalifa Fund began with a total capital of AED 300 million and has since grown to AED 2 billion, covering the whole UAE. The Mohammed Bin Rashid Fund for SME, based in Dubai, intends to fund innovative pilot ventures established by UAE nationals.

Conclusion

Securing a business loan in UAE is a simple yet difficult process. You must obtain the appropriate licence and prepare the essential documentation in order for the loan to be approved. UAE's banks have stringent compliance policies. The bank will reject your loan application if there is a contradiction between your business activity and your licence. To avoid this, we recommend that you contact some experts, who will guide you through the process of securing a loan for your business. There are a variety of ways to fund your new or current business. Regardless of which option you choose, we strongly advise you to get legal and financial advice. We also do not advocate those new businesses seek any type of funding unless they are backed up and guided by experts. To get started, you'll need to get some relevant business experience and learn the ropes.

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