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How to Get A Business Loan In Dubai

Dec 1, 2023 | UAE Company Setup

Securing a business loan in Dubai is a strategic step for entrepreneurs and companies aiming to capitalise on the city’s dynamic market. The emirate’s financial institutions offer a broad spectrum of loan options tailored to support the diverse needs of its business community. From conventional bank loans to innovative Islamic finance products, Dubai’s lenders accommodate startups and established enterprises with competitive rates and flexible terms. With dedicated relationship managers and a variety of financial products, the process of obtaining financing is designed to be as efficient and personalised as possible. This guide will walk you through the array of available business loans, eligibility requirements, and the application process to empower your business’s growth in the thriving heart of the UAE’s economy.

Various Types of Business Loans Available in Dubai

Who Offers Business Loans in Dubai?

Business loans in Dubai come with competitive interest rates and are designed to meet the unique demands of the business community. Banks and financial institutions provide dedicated relationship managers to guide you through the process, ensuring a personalised service. Some of the notable banks offering business loans in Dubai include Aseel, Dubai Islamic Bank, Emirates Islamic, Emirates Money, Gulf Finance, and Noor Bank.

One of the standout features of the Dubai financial market is the availability of Islamic finance. This form of financing complies with Sharia law, which prohibits interest. Instead of traditional interest payments, your business would share a portion of its profits with the bank. This interest-free approach to lending is particularly appealing if you’re seeking ethical financial products.

SBA Backed Loans

For businesses that might struggle to secure traditional financing, the Small Business Association (SBA) Backed Loans, supported by the UAE government, offer a safety net. These loans are designed to assist businesses that have faced rejections from other loan applications, giving them another chance to secure the necessary funds.

Emirates NBD stands out with its array of business financing products. They offer market-leading office, home, and commercial mortgage loans, allowing businesses to secure the right property to underpin their operations. Their Business Banking Property Power Loan provides loans against commercial or residential property, offering substantial loan amounts over extended periods.

Loans For Businesses Requiring Vehicles

For businesses requiring vehicles, Emirates NBD’s Commercial Vehicle Loans and Fleet Financing options provide financing for a range of vehicles, from light commercial vehicles to heavy buses and trucks. These loans cover up to 90% of the necessary costs, including insurance premiums, and offer attractive interest rates.

Construction Equipment Loans from Emirates NBD cater to businesses needing to purchase new or used equipment, with customised financing options available. Similarly, the Emirates NBD Merchant Loan is designed for businesses seeking a substantial loan amount with flexible tenure.

Small Business Loans

For SMEs, Emirates NBD offers flexible financing options with loan amounts of up to $81,670 and a tenure of up to 36 months. As a business owner, you can also leverage equity release against existing properties for expansion purposes, with loan amounts reaching up to $1.4 million (AED 5 million).

Another innovative product is the Business Loan against Fixed Deposit, allowing businesses to borrow up to 90% of their fixed deposit amount. This option provides high loan amounts with a maximum tenure of 48 months, offering a secure way to access funds while still retaining capital.

Eligibility for Emirates NBD business loans extends to a variety of business structures, including Limited Liability Companies, Sole Proprietor Establishments, and Branches of Foreign Companies in the UAE. The required documents include:

  • Bank statements.
  • Audited financials.
  • Valid passport and visa copies of business owners or directors.
  • A copy of the Trade License & Memorandum of Association.

Self-Employment Loans

The minimum monthly salary requirement for self-employed individuals and salaried employees is $8,170 to 65% of property value can be financed.

Additional documentation for these applicants includes:

  • An application form.
  • Emirates ID copy.
  • Original bank statements for the last 12 months.
  • Audited financials for loans above $272,300 (AED 1 million).

Al Islami Business Finance offers a streamlined approval process with business-friendly payment options based on Sukuk Murabaha principles. With financing up to $545,000 (AED 2 million) and tenure options between 6 and 36 months, this option is suitable for companies with a minimum of 2 years in operation and a yearly turnover of at least $272,300 (AED 1 million). Profit rates for Al Islami Business Finance are competitive and vary for new and existing customers.

Desk With Blocks Spelling Loan In Capital Letters

Who is Eligible for a Business Loan in the UAE?

Basic Requirements for Applicants

For eligibility, businesses are generally expected to have a minimum operational history of around two years to demonstrate their sustainability and capacity to manage financial activities. Each financial institution sets the specific annual turnover required to gauge the economic viability of the business. Additionally, having a corporate bank account is mandatory.

Subsidiaries or offshore branch companies may benefit from more lenient criteria due to their expansive operational reach and potentially larger capital requirements.

Documentation Needed for Loan Application

A comprehensive set of documents is crucial for a swift loan application process. This includes a completed application form and the necessary legal documents that reflect the structure of your business, such as a Partnership agreement if applicable. Original trade licences are often required for verification purposes.

Other documents that may be requested include invoices for significant transactions, a tenancy contract or proof of accommodation, and, for certain cases, the Bill of Lading.

Credit Score and Financial History Considerations

A strong credit score, which is ideally in the range of 700-750, can facilitate a smoother loan approval process. It’s beneficial to settle any existing debts to enhance your credit profile.

Lenders can perceive applying for multiple loans within a short time frame negatively, as it may cast doubt on your repayment capabilities. Opting for loans with more extended repayment terms can be advantageous for managing cash flow and potentially improving profitability over time.

Applying for a Business Loan in Dubai

Step-by-Step Application Process

To initiate the process of securing a business loan, compiling all necessary documentation is essential. This includes rounding up legal documents such as the Articles of Association and Memorandum of Association and a Power of Attorney if applicable. A copy of your trade licence and passport are also required for identity verification.

Lenders may request additional documentation, such as tenancy contracts, high-volume transaction invoices, and a list of employees from the Ministry of Labour. Ensure your business meets the bank’s eligibility requirements, which typically include a minimum operational period of two years and a specified annual turnover.

Applicants must be at least 21 years old and maintain a corporate bank account within the UAE. Once you have satisfied the eligibility requirements and prepared your documentation, you can submit your loan application to banks. They will evaluate your business’s financial stability, assets, and creditworthiness.

Loan amounts and interest rates vary, with some banks offering loans ranging from $13,615 to $284,500,000 (AED 7 million), and rates typically between 15% to 26%.

Choosing the Right Financial Institution

Selecting an appropriate lender is crucial. The market offers a variety of financial institutions, each with unique loan products, features, and eligibility requirements. Compare what different banks provide, including interest rates, repayment terms, and customer support.

Some banks may offer additional benefits such as dedicated relationship managers, insurance funding, and Islamic finance options, which involve profit-sharing instead of interest. Your business structure may also influence your choice of bank, as some banks cater specifically to entities like Limited Liability Companies, Sole Proprietors, Partnerships, Free Zone Companies, and Branches/Subsidiaries of Offshore Entities.

Maintaining your business current account with the same bank as your loan may facilitate smoother transactions and potentially result in more favourable terms.

Common Mistakes to Avoid in the Application

Avoid common pitfalls by fully understanding the various loan types available and selecting the one that best suits your needs. Be aware of Islamic Finance, which operates on profit and loss sharing agreements, such as Mudarabah, where the investor bears all losses and profits are divided based on a predetermined ratio.

It’s also vital to present a compelling loan application highlighting your business’s growth potential and demonstrating your ability to adhere to the repayment schedule.

Lastly, consider the flexibility of repayment options and the duration of the loan. Opting for loans with more extended repayment periods can provide greater leeway in managing your finances and fulfilling your obligations with less strain.

Repayment and Interest Rates

Understanding Interest Rates for Business Loans

In Dubai, borrowers can opt for either flat or reduced interest rates. The former implies that the interest is calculated on the initial loan amount for the duration of the loan, resulting in uniform repayment amounts. Conversely, reducing rates are based on the outstanding balance, which diminishes with each payment, typically leading to a decrease in interest costs over the loan’s term.

For instance, a reduction rate might be quoted at 18%, which, when divided by a factor (such as 1.814), equates to a flat rate of 9.92%. This conversion is consistent across various scenarios, where the reduction rate is divided by a factor approximately equal to 1.813 to arrive at the flat rate.

Repayment Terms and Options

Loan repayment periods in Dubai can span from 6 months to 60 months. The structure of the repayment plan can influence your business’s liquidity and budgeting. Some financial institutions provide the possibility of settling the loan earlier than scheduled. However, this may incur charges that typically range from 1% to 5% of the loan amount.

Understanding the stipulations tied to early settlements is crucial to prevent unforeseen expenses. Furthermore, certain banks may offer additional services, such as loan top-ups or extensions under specific conditions, which can be beneficial if you require additional capital or more time for repayment.

Calculating the Cost of a Loan over Time

To accurately assess the total expense of a loan, one must consider not only the interest rates but also ancillary charges like processing fees, which can amount to approximately 2% of the loan amount. The implications of any early settlement charges on the overall cost should also be taken into account.

Amortisation schedules are instrumental in illustrating how payments are allocated between interest and principal throughout the loan’s term. Initially, payments are predominantly applied towards interest; however, as the principal is reduced, a greater portion of the payment is directed towards reducing the loan balance.

Such a schedule can provide a transparent view of monthly payments and the aggregate interest payable over the loan’s lifespan. Additionally, factors such as income, the standing of your employer, credit score, and history of loan repayments can influence the interest rates you are offered, with a robust credit history potentially leading to more advantageous conditions.

Business Loan Form And Pen

Alternatives to Traditional Business Loans

Islamic Finance Options in Dubai

Ijarah, akin to leasing, is a method where the bank acquires an asset and leases it to a company until the payments are completed. At this point, the company gains ownership. This is particularly useful for acquiring expensive capital goods.

Forward Ijarah is designed for assets under construction. The bank disburses funds to the developer or manufacturer. The asset is leased to the company upon completion until ownership transfers after the lease term.

Murabaha involves the bank buying and selling an asset to a company with a profit margin, payable over time. This method is favoured for its straightforwardness.

Musharaka is a collaborative financing model where the bank and the company contribute funds and share in the profits and losses, suitable for general business financing needs.

Tawarruq addresses working capital needs through commodity transactions to generate liquidity. Mudaraba Finance is a partnership where the bank provides the capital, and profits are divided according to a pre-agreed ratio, with the bank typically absorbing losses unless they are due to the company’s fault.

Wakala allows the bank to appoint the company as an agent for Shariah-compliant investments, with profit distribution pre-agreed.

Angel Investors and Venture Capital

Angel investors and VCs represent alternative equity-based funding sources. DAI is an example of a Micro-VC that invests in promising early-stage tech ventures, offering initial funding and follow-on investments for successful growth.

Angel investors are individuals or groups that exchange capital for equity, often playing a pivotal role in startups. Networking or consulting services may be necessary to connect with them.

VCs are firms that invest substantial sums in high-risk ventures. Entrepreneurs often seek local intermediaries to facilitate these partnerships.

Government Grants and Support Programs

The UAE government provides various grants and programs to foster innovation and entrepreneurship. The Mohammed Bin Rashid Innovation Fund and the Expo Live Innovation Impact Grant Programme are two initiatives that fund innovative projects.

Dubai SME, an agency under the Department of Economic Development, extends funding and support to new and existing SMEs, offering guidance and incubation services. DTEC, backed by the Dubai Silicon Oasis Authority, provides co-working spaces, accelerator programs, and investment opportunities.

The DIFC has established a fund to support fintech startups. Platforms like FlexxPay, Huspy, Zenda, LNDDO, and Beehive offer novel financial services, including salary advances and peer-to-peer lending.

The Khalifa Fund for Enterprise Development caters to local entrepreneurs and SMEs with tailored funding and support programs. Incubators such as Astrolabs, In5, and Techstars Dubai provide startups with extensive assistance, including access to capital.

Embarking on Your Financial Journey

Securing a business loan in Dubai is a strategic move towards realising your entrepreneurial ambitions. With this comprehensive guide, you’re equipped with the knowledge to navigate the loan application process and understand the variety of products available and the criteria that must be met.

Remember, the key to a seamless experience lies in meticulous preparation, a clear understanding of your business needs, and choosing a financial partner aligned with your goals. As you embark on this financial journey, let every step be guided by informed decisions and focused foresight, propelling your business towards the growth and success it deserves.

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