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Saudi Arabia has been pouring immense resources into growing its base of SMEs. It’s part of a fast-moving bid to transform the kingdom’s economy, diversifying it away from oil and into a dynamic and globally competitive investment environment.
The results are impressive. Reforms have made it easier to invest and start a new business. SMEs have jumped as a share of GDP, from 21 percent in 2013 to 30 percent currently. Saudi Arabia’s Vision 2030 wants the SME share of the economy to hit 35 percent. So there’s no sign of a slowdown.
The major bottleneck is financing. That’s especially true for the smallest firms. In Saudi Arabia there’s currently about 1.3 million SMEs . The overwhelming majority – 1.14 million – are actually what are known as micro-enterprises. That means they have fewer than six full-time employees.
Banks are typically wary of lending to tiny firms without a track record, so they struggle to grow.
To push back, Saudi Arabia has been rolling out various initiatives to encourage financial entities to give more of their money to SMEs. The government wants financial institutions to allocate 20 percent of their loan portfolios to SMEs. Currently they lend out about 8.7 percent. Below is a guide to the kingdom’s latest initiatives to connect SMEs with financing.
Read more about: UAE lending initiatives For SMEs
The SME Bank is a one-stop shop for SMEs in need of funding. Launched in 2021, the bank offers debt financing, equity financing, and loan guarantees. It has allocated 10.5 billion SAR ($2.8 billion) to support SMEs over the next three years.
Curious about whether you should take out a loan or consider selling a stake?
Read our guide on debt versus equity financing.
Through SME Bank’s online portal, SMEs can apply directly for things like:
1- Microloan - Up to 500,00 SAR for short-medium term needs; for businesses with revenues not exceeding SAR 3 million per year
2- Working Capital Loan - Up to 15 million SAR for short-term expenses; for businesses with revenues not exceeding SAR 200 million and no more than 250 employees
3-Term Loan - Up to 15 million SAR, three-year loan; for businesses with revenues not exceeding SAR 200 million and no more than 250 employee.
4- E-Commerce Loan - Up to 2.5 million SAR for SMEs on E-commerce platforms for inventory and finished goods
5- Revolving Limit Loan - Up to 8 million SAR revolving credit limit for short-term financing needs
For more details and to see if your business is eligible, check here.
Another great initiative that falls under SME Bank is Funding Gate (also known as Tamweel Gate). This is an electronic platform that connects SMEs with government and private lenders (47 entities in all, including leading banks).
Their online portal lets companies quickly navigate different financing options. SMEs with a valid commercial registration in the kingdom can apply online for funding and receive a decision within days. Demand on the platform has been rapidly growing.
Banks often turn away small businesses because they think it’s likely they’ll default. But that risk can be reduced if a third party extends a loan guarantee.
That’s the idea behind the Kafalah program, which guaranteed 12.1 billion SAR ($3.23 billion) to SMEs in 2023, helping 5,467 small businesses get loans. SMEs looking for a loan guarantee can approach lenders directly. You can see a list of participating banks and financial entities here.
Everything discussed above refers to debt financing. Another option is equity. Promising startups and SMEs may consider trying to win over a venture capital fund. Saudi Arabia is fast becoming one of the hottest markets for venture capital.
It was the top country in the MENA region in 2023, netting 52 percent of all VC funding in the region. A record-breaking $1.38 billion in VC capital was deployed in 2023. The lion’s share of that funding went to early-stage deals – 81 percent of all deals in 2023.
Getting VC money is no easy task. But here too, it's getting a bit easier because of new initiatives. In 2018, the government launched the state-owned Saudi Venture Capital Company (SVC).
SVC is supercharging the venture investment ecosystem by pouring money into private funds (like VCs and private equity). In turn, these funds are investing in the kingdom’s startups and SMEs. SVC is also co-investing with angel investors. So far they’ve backed over 700 startups and SMEs with $2.2 billion in assets under management.
Learn more about: Angel Investments in Start-ups
SMEs can also benefit from a few other services that include:
1-The Esterdad Initiative - This program reimburses government fees to qualifying companies, reducing their financial burden.
2- Indirect Lending Initiative - This state-led initiative targets licensed finance companies, working with them to get low-cost loans to SMEs
3- SME Support Center - The center provides advisory, training, and mentorship programs for SMEs while connecting young businesses with larger enterprises. You can book an appointment here.
Saudi Venture Capital Company
Saudi Arabia is the top country in MENA for venture capital investment in 2023
FY 2023 Saudi Arabia Venture Capital Report
