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What to Know Before You Apply for a Business Loan in Dubai, UAE?

Today, the UAE is regarded as the most consistent destination in terms of economy and economic growth. In the United Arab Emirates, Dubai is considered one of the most promising destinations for investors and entrepreneurs to start their businesses. Known as the land of countless opportunities, Dubai attracts entrepreneurs from every part of the world. Moreover, its favourable business environment has made the city the first choice for investors looking to set up a business abroad.

Apart from its investor-friendly environment, this emirate of UAE has also announced several benefits of establishing a business there. And creating an ecosystem that supports new entrepreneurs, investors, and start-ups with easy funds and finances encourage many investors to invest in Dubai. In this endeavour, banks and financial institutes are equally coming forward to provide conducive conditions for investment, and thus easy loan for business from banks in UAE is an impetus for the business community.

In this blog, we will try to understand the various aspects of obtaining a business loan in the UAE.

What is the Eligibility Criteria for a Business Loan in the UAE?

Before you start the process and apply for a bank loan, you will first need to check the eligibility criteria of the concerned bank before approaching it for a loan.

Below, you will find the list of standard criteria that all the banks ask for:

  • Your business operation should be at least a year old.
  • Obtaining a bank loan for business gets more manageable if your association is a branch or subsidiary of any offshore company.
  • Every bank has different criteria and business turnover requirements to obtain a business loan. You can contact each one of them to find out more.
  • In UAE banks, you get different types of loans to different business categories, and the duration for a business loan is 1 to 4 years.

What are the Necessary Documents to Apply for a Business Loan in the UAE?

You can quickly obtain a business loan in Dubai (UAE), whether you want it for a giant company formation or a small business setup. All you will need is valid documents and certificates. Your bank statement is the most crucial one out of many documents that you need to apply for a bank loan in Dubai (UAE) for your business.

The necessary documents that you will have to submit for a bank loan for business in Dubai (UAE):

  • Last 12 months Bank Statements
  • VAT Certificate
  • Audit Report
  • Emirates ID
  • Office Ejari
  • Lading Bill (if applicable)
  • Passport and Visa of all the Partners
  • Trade Licence
  • Memorandum of Association/Share Certificate or Board of Resolution (if asked by the authority)
  • Owners Home Residence Tenancy Contract or Sharing Accommodation Letter
  • High Volume Transaction invoices
  • List of employees obtained from Ministry of Labour

A trade licence is a permit provided by the government of UAE to the investors permitting them to run their business in the country. Depending on your business’s category, you will need different trade licences for every trade. Counting on various factors, a trade license fee may be between AED 10,000 to AED 30,000. Most investors select a general trade licence that enables them to in all goods and supplies. A trade licence is precious, not only for obtaining a business loan but also for other loans in UAE. A trade license is an essential document for self-employed individuals.

What are the Key Advantages of Obtaining a Business Loan in Dubai (UAE)?

Some of the many advantages that banks in the UAE give to their customers after they have received the business loans are:

  • Free credit card
  • Free life insurance cover
  • Business loans that follow Shariah complaints
  • Interest rates in UAE can be selected between fixed rates or decreasing rates

What are the Reasons for Rejection of Business Loan?

However, do not panic or worry if the authority has rejected your application for a business loan. Instead, consult a business setup expert or bank loan expert who will assist you in obtaining a bank loan and filing for the application. They will also help you with the necessary approvals, clearances and processes to make it convenient for you and your bank.

Low Credit Score

A low credit score is the most typical reason for rejecting loans in UAE banks. When you apply for a business loan, banks check your personal credit score in the process of assessing the applications and eligibility for a business loan. It is an integral part of the loan application evaluation for a business of any size, be it a small, medium or a big company.

The purpose is to assess how good a business or company manages its funds. If the business owner, entrepreneur or investor is found incapable of managing his personal credit, lending banks find it difficult to trust them for loan repayments.

The banks also investigate the business loan applicants’ business credit accounts and potential defaults (if any).

Therefore, it is vital to keep your bank loan repayments clean and updated to avoid Low Credit Score. Make payments for your credits card lendings and personal loans in UAE on time.

Unable to Pay Monthly Debts

Banks in the UAE also evaluate your monthly debt responsibilities when applying for business loans. If it is found that you are not in a position to pay your monthly debts, then banks will immediately reject your loan application.

The credit utilization ratio is part of the evaluation process by banks to approve business loan applications for businesses. According to banking experts, it is essential not to use more than 30% of the available credit to maintain healthy repayment records.

Banks consider you a high-risk applicant if you have used maximum credit on your available limit. A higher credit consumption indicates a higher risk, and it is an obstacle to loan application approval.

Similarly, your loan can be disapproved, even if there is an absence regarding the record of how to handle credit payments responsibly and if you do not hold any debt in such a situation.

To avoid such a situation, business loan applicants should be responsible for making payments and keeping track of total credit limits that include personal credit cards, business credit cards and any other sources of credit borrowing.

Inadequate Collaterals

Collaterals are business assets like vehicles, investments, steady income, property, and appropriate assets.

When you approach a bank for a business loan, they will ask for collateral security before approving your business loans. If banks find your collaterals are insufficient to meet business loans’ eligibility criteria, then your loan application may be disapproved.

In such cases, you can apply for alternative options for funds like unsecured loans where there is no collateral required to obtain a business loan.

Poor Business Performance

In case of poor performance, when a business operates on low revenue and the cash flow statements indicate that it does not have enough money to run business comfortably daily, then banks assume that the company is unfit to make loan repayments.

Though it is prevalent in many businesses to operate with cash flow difficulties, if it continues beyond a specific limit with low cash flow, the bank reserves the right not to approve your loan.

On the other hand, if you own an established business or even if you are very new in business, to build your credit score records and qualify for a business loan, you should ask your vendors and associates to report for the payments to business credit agencies. This can help you in improving your credit score.

Incomplete Supporting Documents

The banks can reject your business loan application if you have not provided adequate information or did not provide all the necessary information in the application form.

The supporting documents that banks ask from applicants are business plans for the 3 to 5 years, financial estimates, business credit records, bank account statements, personal tax returns, and other necessary reports. If you fail to provide these documents, there are chances of your loan application rejection.

Banks also evaluate all the relevant legal documents of the business like licence, permits, leases, agreements, contracts and other equivalent documents.

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