Unlock growth opportunities in the UAE with our step-by-step guide on obtaining a business loan. Discover key tips, requirements, and expert insights to secure financing for your entrepreneurial dreams. Start your journey to success today!
A business loan can prove useful when you need a financial boost to jump-start your newly registered business. Also, if you require financial collateral to open up another branch and generate higher sales. Raising capital and gaining investment can be a daunting task for some newly established businesses. However, to have a smooth flow in the long-term, or your day-to-day operations, securing loan funding is a must.
With a tremendous figure of AED 93.4 billion being provided to enterprises by Emirate banks, as reported by WAM, Dubai is considered a particularly attractive location for SMEs to strategically plan for the long term and secure their cash flow. Dubai is widely known for its emphasis on creating flexible economic policies. There is a low-tax business environment and magnificent infrastructure. With favorable interest rates and funding to ensure your business survival, UAE as a business location would be a great choice. To empower your start-up financially, it’s better to equip yourself with knowledge about this process.
Features of Business Loans in UAE
A business loan is borrowed capital granted specifically for entrepreneurial purposes. These loans also are subject to corporate tax in the UAE. The country conforms to its own regulatory environment, and certain conditions apply to how Emirate banks carry out transactions. Companies hire professional accounting firms in Dubai in order to make sure that they do not have trouble with the law. Before we delve into the specifics of eligibility and benefits, it’s important to be aware of the important characteristics of a business loan.
The new entry permits and tourist visa changes that will come into effect on October 3, 2022:
- Loan Amount Provided
- Depending on the kind of loan you decide to apply for, whether it be an Islamic loan or a small business loan, the amount you receive will vary from AED 50,000 to AED 7 million. The loan applicant’s liquidity history and assets will be taken into account when arriving at a consensus.
- Interest Rates
- On average, Dubai’s interest rates range from approximately 15% to 26% with favorable conditions. The fluctuation of the interest rate will depend on the applicant’s credit history, income, number of loans, and other financial collateral.
- Bank Account
- The business must have a functioning bank account in the UAE assigned to them in order to apply. The bank will analyze all transactions and relationships with the lender to decide whether the loan should be granted or not.
- Payment Period
- In Dubai, the repayment period for a business loan ranges from 2 to 5 years, depending on your funds and the amount taken.
Other than this, you will also encounter minimal documentation and paperwork to go through while having a consultant guide you through any doubts during the process. At Meydan Free Zone, the process of hefty documentation and applying for a business loan can be managed by our panel of talented consultants.
Types of Business Loans in the UAE
There’s a plethora of notable business loan types available that you should consider before deciding on one to secure your funds quickly.
Standard Loan
The standard business loan in Dubai is granted with certain conditions, such as repayments having to be made in fixed monthly installments and having both fixed and variable rates. Loan amounts can be negotiated with interest rates cordially.
Islamic Loan
Islamic finance is an important aspect that you must bear in mind. In simple terms, this type of financing is permitted under all conditions of Sharia law. A business loan is interest-free, and instead, your business will give the bank a share of available profits. If you plan to operate in Dubai, this type of loan may be useful in reaching ethical and moral business dimensions.
Small Business Association (SBA) Backed Loan
If you find that most of your business loan applications are being rejected, it would be a good idea to opt for this option as it is solely supported by the UAE government.
Eligibility Criteria for Loan Application in UAE
Getting instant approval from the lending institution can be a bit of a problem. Unless you meet most of the crucial eligibility criteria. Banks in Dubai are quite particular about accepting a loan application. With a major focus on previous financial history and availability of funds.
Here are some of the basic criteria for applicants;
- Being at least 21 years of age.
- The business should have been operating for at least a year. This is because a time period less than that would not provide substantial proof of profit and loss statements. Also, to make sure that the business has enough liquidity to pay upcoming installments. Also, such businesses would not have paid corporate tax in the UAE yet.
- Have a proper corporate bank account.
- Effective presentation of bank account statements for the past 6 to 12 months.
- Although it varies from bank to bank, the yearly sales revenue should amount to at least AED 1 million to receive the loan.
- If your company is set up as a subsidiary or an offshore branch company. Then, obtaining a business loan may be easier due to the diversity of operations and the need for larger funds.
Having a corporate bank account is one of many eligible requirements you need to have. Also, hiring professional bookkeeping and accounting firms in the UAE can help businesses.
Requirements for Business Loan Applications in UAE – Documents Required
There’s an extensive documentation process that you need to carefully follow to get approval from the bank you desire. You have to obtain the relevant business license and collate the needed paperwork to be accepted.
A general trade license is vital to operate your business in the UAE. At Meydan Free Zone, you can access a wide range of business licenses that suit various business activities at some of the most affordable bundle costs.
Things to Know Before You Apply for a Loan in UAE
Before you apply for a loan in the UAE, there are some pointers regarding finance procedures you need to have adequate knowledge of. This can help you improve your eligibility score and meet other requirements.
Educate Yourself on Islamic Finance
As mentioned earlier, it’s important to distinguish between traditional and Islamic finance. So that whatever business transactions and credit you take adhere to the regulatory environment of Dubai. A vital point to note if you choose to pursue an Islamic loan is that paying interest is prohibited in Islamic Law. Instead, both parties trading need to share equal amounts of profits and losses instead of paying interest.
Credit Score and Debt
The ability to pay the installments for the loan is assessed carefully by Emirate banks. The first step is to make sure your credit score remains moderate. Preferably at a score around 700-750, which would result in the loan getting approved quickly. Also, sort out previous debts like credit card bills and overdrafts to increase your creditworthiness.
It’s also best to avoid taking several loans in the same time period to prevent Emirate banks from speculating on your ability to repay.
Repayment period
It’s always better to opt for loans with longer repayment periods so that the ease of doing business is higher. The installments you have to pay will also be spread out over a longer time period. Hence reducing your business costs and improving your profitability in the long run.
Benefits of Applying for a Business Loan in Dubai
After reading the information above, we can gather that loan application in Dubai consists of certain benefits like;
- Assistance to prepare essential documentation – Economic jurisdictions like Meydan Free Zone specialize in helping you set up your new business with optimum ease, which includes eliminating irritating paperwork.
- Loan amounts can reach up to AED 5 – 7 million.
- Loan types are available for SMEs, large enterprises, startups, and business models of all sorts.
- Flexible repayment plans and tenures
Why Accounting Firms in Dubai?
There are accounting and bookkeeping firms located in the very heart of Dubai. They are burrowed in the midst of skyscrapers that give structure to the visually abundant skyline.
There’s no doubt that every business requires a boost when it comes to achieving financial success. Which is the center point of all business decisions and future planning. Having tight security regarding your business’s financial health is important because it affects your operational risks. Also, financial risks, marketing objectives, and human resource planning. With accounting and bookkeeping firms in Dubai and their expertise, attentive assistance, and availability of business licenses. Thus, obtaining the desired loan amount for the prospects of your entrepreneurial goals will be an easier task.