Understanding Business Loans For Your Start-up in UAE

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Funding Souq Editorial Team
Tech Writer
May 21, 2024
Funding Souq’s editorial team comprises experienced finance and investment professionals that are on a mission to fuel SME growth, create jobs, and drive the economy forward. They aim to share their extensive experience and industry know-how to empower entrepreneurs and investors alike.
May 21, 2024
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The UAE is a fantastic place to launch a business and scale it up. A flurry of government initiatives to promote SMEs are making it easier (and cheaper) than ever.


The trick is often just knowing what credit options are available, which ones make sense for your business, and whether you qualify. This post will help you sort all that out.

 

What makes you eligible for a UAE business loan?

 

Before you assess which loan suits your business, make sure you’re eligible. If you’re dealing with a commercial bank, you’ll likely need to meet the following requirements:

- Your business has been operating for at least one year (some require longer).

- You have an existing corporate bank account.

- The business owner or applicant is at least 21 years old.

- Your annual sales turnover is at least AED 1 million (some require higher)

 

What are the required documents for obtaining a business loan in the UAE?

 

1- Copy of loan applicants passport or Emirates ID

2- Bank statements from the past 6-12 months

3- Copy of your business license

4-Company documents such as Article of Association, Memorandum of Association, Power of Attorney, and Partnership agreement


In addition, banks may also ask for things like:

- A VAT certificate

- Employee list

- Lease agreement

 

How can you get a good loan rate for your start-up?

 

Small businesses often get lousy interest rates on their loans because they’re seen as risky borrowers. Even worse, many can’t get loans at all. Securing a loan at a good rate depends on things like your credit score, business history, and whether you can put up solid assets for collateral – more valuable collateral can often push down the rate. 

 

Check out our deep dive into how banks evaluate collateral and determine loan eligibility for SMEs

 

Do you qualify for a subsidized SME loan?

 

The best interest rate of all is zero. Before you approach a commercial bank, it’s worth checking out the suite of subsidized lending programs the UAE offers

As a startup, you may even qualify for an interest-free seed loan from Dubai SME. There’s no better deal than that. You may also be eligible for a credit guarantee, effectively nudging an otherwise risk-averse bank to lend to a company without a long track record.


Read our guide to SME lending initiatives in the UAE for more details.

 

What are the types of business loans offered in the UAE?

 

Next you should decide what type of business loan in UAE you need. This largely depends on how long you need the money for, and for what purpose. Here are the most common options with a few examples of what’s being offered in the UAE.

 

1- Term Loans - A term loan is a lump sum of money. These are commonly used to buy assets or to make long-term investments (things like a building or machinery for a new factory line).

You’ll repay the loan on a fixed payment schedule (with interest). As an SME, your term loan will usually be on the shorter side. Typically that means fewer than five years.

-For example, Commercial Bank of Dubai offers 12-48 month term loans of up to AED 1 million with no collateral required.

-First Abu Dhabi Bank offers an SME Growth Loan of up to four years at rates “below the average market rate.”

-Emirates NBD has a Small Business Loan of up to 300,000 AED for up to 36 months with an “attractive interest rate” that you can apply online for.

You can also compare different business loan rates here.


2-Working Capital Loans - These are short-term loans for everyday expenses like payroll, inventory or rent. The duration can be just a few months. These are great for bridging periods when your business is short on cash, like during an off-season.

Emirates NBD for example offers short and long term overdraft protection.

3-Asset backed financing - This allows you to borrow money based on collateral like your company’s assets. The assets can be inventory, equipment, real estate, accounts receivable. This is ideal if your cash flow is low. Keep in mind this may prevent you from putting these assets up as collateral for other loans.

-Dubai SME offers an interest-free product that covers up to 80 percent of the value of assets.

-ADCB meanwhile has an asset-backed financing program designed for SMEs with options like commercial vehicle loans, construction equipment loans, and other professional equipment.

4-Trade Finance - This is a critical component of doing international trade. You can get things like letters of credit to expand operations globally.

5-Invoice Financing - Also known as invoice factoring, this lets you borrow money against outstanding invoices. You’ll get the money now but then pay a fee later. This is often higher than the rate on a traditional loan, but it’s a route to getting quick cash if you’re in a pinch.

6-Small Business Credit Card - These can provide a revolving line of credit. They usually have a higher credit limit than a personal card since they’re tied to business revenues. This can help build a business credit score.

You can compare different business credit cards in the UAE here.

 

References

 

Applying For A Business Loan in Dubai: Step by Step Process

Mohammed Bin Rashid Fund for SME

Emirate NBD Small Business Loans 

Commercial Bank of Dubai Business term loan

Dubai SME- Request Seed Loan

SME Growth Loan- First Abu Dhabi Bank


Disclaimer 
"Funding Souq Limited (DIFC) is regulated by DFSA. The post is for educational purposes only and the Firm does not directly or indirectly provide these services."

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