What are Business Loans?
Business Loans are aimed at providing finance to meet business requirements of customers such as working capital needs, expansion of current business operations, purchase new inventory, start a new company, import and export shipping, improve cash flow management, mergers and acquisitions among others. There are various entities which may be eligible to avail of a business loan such as Limited Liability Company (LLC), partnerships, subsidiaries of offshore entities, sole proprietorships and free zone companies among others.
UAE ranked 23rd in a World Bank report in 2014 on Ease of Doing Business. According to a study, only 4% of lending in the UAE comprises business loans to small and medium enterprises (SMEs).
Features of Business Loans in the UAE
There are various factors which should be taken into consideration while applying for business loans in the UAE. Some of the factors are listed below:
- Loan amount and period: The loan amounts offered many vary from AED 125,000 to 2 million AED. The loan period may range from 12 to 72 months.
- Eligibility: Sole proprietors, free zone companies and branches of offshore entities among others are eligible for business loans.
- Flat or reducing interest rates: Flat interest rates are normally lower than the reducing balance.
- Loan extension/Top up: Many banks offer the top-up facility wherein a business loan can be extended if all the required criteria are met.
- Equity Requirements: Customers have the option to opt for either debt or equity. Some banks offer equity financing which entails transfer of ownership of a company.
- Minimum Balance: Most banks set a minimum balance requirement to offer the loan which may range from AED 1,000,000 to AED 2,000,000.
- Insurance Funding: Some banks such as Mashreq bank offer credit shield.
- Islamic Finance: Many banks in the UAE offer loans based on Islamic finance principles. Customers can, therefore, also look for specific Islamic Finance options.
- Collateral: Many banks such as Mashreq and Abu Dhabi Islamic Bank (ADIB) do not demand a collateral for offering business loans. However, customers should check with the concerned officials about the said feature.
- Current Account: Customers who have a current account with the bank lending them a business loan are more likely to enjoy competitive interest rates and various other benefits.
- Arrangement fees, early settlement and processing fees: Some banks may charge a fixed percentage of loan amount as arrangement fees. Many banks also charge a small fee for early settlement (1% of outstanding loan amount). Most banks charge processing fees from 1.35 to 2%.
- Customer service/Relationship Manager: Many banks in the UAE have a dedicated relationship manager to review the loan requirements, monthly payments and any issues related to business loans.
- Introductory offers: Many banks in the UAE have special introductory offers for customers applying for business loans.
- Credit Cards: Some banks such as Mashreq offer free business credit cards for availing of business loans. The cardholders can enjoy cash back offers besides other benefits.
- Salary Transfer facility: Many banks in the UAE offer business loans encompassing salary transfer. However, some banks such as Mashreq do not have salary transfer requirements.
Comparison of Top Banks in the UAE offering Business Loans
The following table shows the interest rates and other charges by various banks in the UAE:
|Name of the bank||Minimum Revenue||Maximum Loan Amount||Maximum Tenure||Reducing Interest Rate||Flat Interest Rate||Credit Shield|
|Mashreq Small Business Loan||AED 1,500,000||AED 1000000||48 months||20.00%||11.11%||Available|
|ADIB Business Finance||AED 1,000,000||AED 2,000,000||4 years||0.00%||0.00%||-|
|RAKBANK Finance Loan||AED 0||AED 1000000||72 months||18.00%||10.00%||Available|
|Noor Business Finance||AED 2,000,000||AED 4,500,000||72 months||18.00%||10.00%||-|
|DIB Business Finance||AED 1,000,000||AED 1,500,000||72 months||15.00%||8.33%||-|
Documentation Required for Business Loan
While the specific documents required for processing a business loan may vary from bank to bank, below are some of the common documents required
- Filled in application form.
- Partnership agreement/Power of attorney (POA)/ Article of Association/Memorandum of Association (MOA).
- Trade license (copy).
- Bank statements.
- Passport (copy).
- Other valid documents.
News about Business Loans in the UAE
UAE Banks to not carry out criminal prosecutions on cheques bounced by SMEs
UAE banks and financial institutions have agreed to stop criminal prosecutions for bounced cheques by small and medium sized enterprises. This decision is part of a ‘rescue campaign’ that was launched by the banking industry. This is a big change for the UAE’s financial system which usually relies on paper cheques as security for business transactions. This move was prompted by the high levels of defaults in the SME corporate sector.
30th March 2016