Dubai offers endless possibilities for entrepreneurs seeking to establish a business. It is often the first choice for those looking to venture beyond their home country. The United Arab Emirates holds the 21st position in the World Bank’s 2017 Ease of Doing Business Report, thanks to its exceptional infrastructure development, diverse culture, and favorable business environment, all of which have contributed to its thriving economy.
Dubai, as the commercial hub of the UAE, presents a global investment destination due to its robust financial system. Entrepreneurs can easily obtain financial assistance in the form of business loans from banks in Dubai.
Numerous banks and credit organizations in Dubai offer a range of business loans, making the process relatively straightforward. However, it’s important to keep in mind the 5 Cs of credit: capital, capacity, character, collateral, and any additional conditions set by the lender. While these loans may appear simple and convenient to obtain, they are not without risks. In this blog, Dhanguard will discuss the various types of small business loans available in Dubai and the risks and considerations associated with applying for such loans.
Without further delay, let’s delve into the details!
Dubai offers a wide array of small business loans that cater to different needs.
Small Business Association (SBA): If your local bank denies you a business loan in Dubai, you have the option to approach the Small Business Association (SBA). These loans are government-backed and serve as an excellent alternative for small enterprises. However, failing to repay these loans can lead to severe consequences as the government will take aggressive measures to recover the funds.
Typical Business Loans: This type of loan involves making monthly payments for a fixed period. The terms and payment amount are non-negotiable. However, if you opt for a variable-rate loan, the terms and amount may change. Failure to comply with the bank’s terms and conditions can result in termination of the contract and closure of your account.
Loans on Credit Cards: Small businesses can obtain cash advances through credit cards, albeit at a significant interest rate. While it may be challenging to manage debt, it is still preferable to an SBA loan. It’s important to remember that every type of business loan carries some risk, considering that lenders entrust you with their money. To secure a business loan in Dubai, you’ll need original and valid documentation, with a Trade License being one of the most crucial.
Trade License: A trade license is issued by the government to individuals conducting business activities. The type of trade license required depends on the nature of your business, and its cost may vary. Many business owners prefer a general trade license that allows them to operate in any industry. A trade license is not only necessary for obtaining a business loan but also for personal, home, and auto loans.
Apart from a Trade License, the following documents are essential for acquiring a business loan in Dubai:
Contractual agreement (for partnerships) Passport Emirates ID Bank Statement Business Loan from Family or Friends: You may also consider approaching a family member or friend for a business loan. The advantage lies in flexible terms and lack of interest. However, the risk is that failure to repay the loan could strain or even ruin the relationship.
Bank Guarantee’s Importance for Business Loans in UAE: Understanding whether you meet the eligibility criteria for a bank loan is crucial. Not every bank offers customized plans that align with your specific requirements; they have their own set of criteria. Banks primarily evaluate the nature of your business and the profiles of directors, partners, or shareholders before approving a loan. They assess the risk associated with your sector by considering factors such as business establishment, longevity, and assets.
The typical requirements include:
Minimum one year of operation Offshore company branches or representative offices have easier loan access Minimum