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Small Business Loans in the UAE. A Comprehensive Guide.

There are numerous reasons why you would desire to operate a small business, whether you've produced a product, devised a novel solution to a common problem, or simply enjoy the concept of being your own boss.

If you decide to start your own business, you'll quickly discover that it costs a lot of money to get it up and running, especially upfront. A small business loan might help you get the funding you need to get your firm off the ground.

Thus in this blog, Dhanguard will extensively discuss Small Business Loans in the United Arab Emirates. So without any further ado, let’s learn!

What is a Small Business Loan to begin with?

Small business loans are distinct sorts of finance provided by different lenders to companies for varied purposes. Several forms of small business loans have arisen over time to assist entrepreneurs in achieving their objectives. As a result, the operation of a small business loan is dependent on the loan type.

What are the various types of Small Business Loans in the UAE?

The various types of Small Business Loans in the UAE are enumerated below-

 

Finance for Accounts Receivable

Accounts receivable finance, often known as factoring, is selling your receivables or unpaid invoices to a lender in exchange for early payment. In exchange for a fee, the lender assumes the risk of your receivables and provides your company with cash. The amount of money you receive will be determined on the age and quality of the receivables. While accounts receivable finance provides quick access to cash, you'll certainly pay more for it than other types of 

financing, especially if your company's credit isn't perfect.

Loans for Working Capital

Unlike certain small business loans that are designed to fund long-term assets or investments, working capital loans are used to fund your company's daily operations. Rent, salary, and debt payments are examples of these procedures. Working capital loans have shorter durations and lesser sums than other small business loans. These loans are sometimes connected to your personal credit, which might be harmed if you don't pay on time.

Line of Credit for Small Businesses

A credit card for small businesses is equivalent to a business line of credit. You can borrow up to a set amount of money and only pay interest on the amount borrowed. You can borrow cash and repay them as often as you want with a small company line of credit as long as you don't go over your credit limit.

Loans for equipment

As your small business grows, equipment loans can help you update or purchase new equipment. You can utilize an equipment loan to pay for things like X-ray machines or infusion pumps if you're in the health-care industry. Equipment loans typically require less documentation than other small business loans, so you can get money quickly.

Credit Cards for Small Businesses

A small company credit card is comparable to a personal credit card, but there are a few differences to be aware of. A small business card may have reporting capabilities, allowing you to categorize and track your spending. It might also include a rewards programme that will save you money on things like office supplies and marketing services.

Term Loans for Small Businesses

If you receive a small business term loan, you'll get a lump sum of money that you'll pay back over time at a fixed interest rate. These loans are usually repaid in five years and are used to fund a specific investment for a small firm.

Small company term loans, like mortgages and car loans, usually include an amortization plan, which means that the majority of your payment will go toward interest at first.

SBA Loan

An SBA loan is a government backed small-business loan that can be used to fund things like startup expenditures, expansions, and real estate purchases. A private lender issues this sort of loan, but it is backed by the federal government. An SBA loan is obtained through a lending institution such as a bank or credit union.

Features of Small Business Loan in UAE

The following are the main features of small business loans in the UAE.

Amount of Loan

In the UAE, business loans typically vary from AED 50,000 to AED 500,000. Banks examine the applicant's financial situation before approving a loan.

Period of Repayment

The repayment term for a company loan is typically 2 to 5 years. The length of the repayment period is determined by the loan amount.

Rate of Interest

Small Business loan interest rates vary per bank. Credit history, monthly income, the number of active loans, the loan amount, and other criteria all determine the interest rates for applicants. A small business loan's typical interest rate ranges from 15% to 24%, with rates decreasing each year.

Read More: Why Bank Guarantee is Important for Business Loan in UAE?

Small Business Loan: Important Pointers to keep in Mind

Before applying for a small business loan in UAE, one should keep the following things in mind-

Improve your Personal and Business Credit Ratings

Lenders who provide small company loans will look at your personal credit score to assess whether or not they should lend you money. Personal credit reflects your ability to repay personal debts such as a mortgage, auto loan, or credit card. The higher it is, the less dangerous you are in the eyes of a lender and the more likely you are to acquire a loan.

Understand the Needs

You can improve your chances of getting approved for a small business loan by knowing what a lender's minimum requirements and qualifications are. While some lenders are more liberal than others, the majority of them demand borrowers to have a certain credit score, annual income, and number of years in business.

Bank loans and those backed by the SBA are the most difficult to qualify for out of all the types of company loans available. While a credit score of 640 is usually required for these types of loans, a score in the 700s or 800s is preferable.

Make a Business Strategy

A business plan's objective is to demonstrate to lenders how you intend to spend your funds. Your business plan will explain why you need the financing and how you think it will help you become more lucrative. Make sure to include the following facts while writing your business plan:

  1. Description of the firm

  2. Description of a good or service

  3. Analysis of the market

  4. Sales and marketing strategy and implementation are the responsibility of the management team.

  5. Forecasts and financial plan

If Necessary, Provide Collateral

To obtain a small company loan, some lenders need you to submit collateral or an asset such as real estate, equipment, or inventory. If your business fails and you can't make your payments, lenders have the authority to seize and sell the collateral you supply.

To obtain an SBA-backed loan, for example, you must provide collateral as well as a personal guarantee of at least 20% of the business (from each owner, if there are more than one). Your assets and credit score are at stake as a result of this personal guarantee.

Understand Your Choices

When you've done your homework and are aware of all of your alternatives, getting accepted for a small business loan is a lot easier. Make it a goal to repay your loan on time, regardless of the type, so that it benefits rather than harms your business.

Documents Required for a Small Business Loan in the UAE

Whether you own a small or large company, getting a small business loan accepted is simple if you have all of the necessary documentation. 

When applying for a small business loan in the UAE, you must supply the following documents.

  1. Tenancy agreement for an office (if applicable) - Original and duplicate

  2. Letter from the owners sharing accommodation - original and copy

  3. Employee list received from the Ministry of Labor

  4. Original and a copy of high-volume transaction invoices

  5. Original and a copy of the VAT Certificate

  6. Trade License

  7. Last year's bank statements

  8. Share Certificate/Memorandum of Association/Board of Resolution (whichever is applicable) - Original and duplicate

  9. Original and copy of each partner's passport and visa

  10. Original and duplicate Emirates ID

  11. Original and copy of the audit report

Conclusion

Small Business Loans can be very helpful when you are in need of funds and you do not want the hassle of large amounts of debts on you in the long run. There are a variety of banks in the United Arab Emirates which provide Small Business Loans as per your needs. Getting in touch with our Experts will give you an advantage of getting your very own Small Business Loan quickly and without any hassle.

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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