Securing working capital for your business

Every business needs a little nudge by way of intermediate or preliminary funding. Here’s how you can secure the best type of capital that suits your business needs.

Everybody loves doing business in the UAE. The country has extremely friendly policies that aid the setting up and financing of start-ups, mid-range and even high output businesses. No wonder then that so many businesses are opening up in the UAE with every passing year.

However, every business needs funding at some point. Start-ups may need to accrue capital before they officially launch their business, while on the other hand, mid-size businesses might need a boost with incremental funding to keep their yearly goals on course. Then there are businesses that require working capital to launch a new product or service, or large businesses that need to open a couple of overseas branches.

Fortune favours the brave in UAE

Entrepreneurs in the UAE are spoilt for choice when it comes to securing working capital for their businesses based in the UAE. All banks and financial institutions in the country offer several funding options for businesses to raise initial or intermediate working capital.

However, based on your requirement, you will need to decide which product you must approach your bank for. If you don’t possess adequate information on the subject, simply approach your bank with your requirement and go through their products. The bank will take stock of your business’s financial health, future projections, business developed in the last financial year, your credit score and repayment capacity, among other factors, before recommending a suitable product for you.

The kinds of products you can opt for

Banks in the UAE offer everything from letters of credit to overdraft facilities to help businesses. Some banks also offer working capital to larger businesses which is known as ‘enterprise credit’, provided that business has a minimum sales turnover (in million dirhams).

Normally, businesses can avail of such working capital products as business loans (suited to specific credit needs), overdraft facility (useful for businesses that need cash flows instantly during the course of the working day, such as garment industries, for example), or even mortgages against the office or home space. Businesses operating a fleet of vehicles in the UAE (such as radio taxicabs and goods transport trucks) can also avail of automobile loans aimed at these businesses.

Overall, when opting for a working capital product for your business, study the interest rate being offered, any additional benefits that the bank or financial institution offers you, the documentation you will need to provide, and most importantly, the funds you can independently raise before you sign up for a product with the bank.

Working for an unlisted company can affect your loan application

If the company you work for is not listed with the bank, it may become a little problematic to get a loan. Here’s what you need to know.

Banks in the UAE are making it extremely easy for residents and expats to avail of bank personal loans. They are offering excellent interest rates and easier procedures to process the loan applications. However, the procedure is not as simple for those who work with unlisted companies in the UAE.

In the absence of a credit bureau in the UAE, banks in the country follow a system of assessing an individual’s credit score and eligibility by a criterion known as ‘listing’ of companies. This is a system wherein individual companies are studied for their company size, annual revenues, field of operations and overall stability. Based on this information, companies may receive approval for listing with banks.

Once a company is listed, employees of that company may avail of loans from that bank. The UAE is constantly adding more and more companies to the list; however, it can get slightly difficult to apply for a bank personal loan if one works for an unlisted company.

What is the need to list companies? Since banks are lending money to individuals, they must be assured of that individual’s repayment capacity. A lot of this repayment ability hinges on the individual’s income, which in turn, hinges on the financial health of the company he or she works for. If the company is unlisted, the bank has no way to assess the applicant’s eligibility.

Is there a way to get the company listed? If you want to avail of a bank personal loan but are unsure of your company’s listing status, contact banks to find out if the company is listed with them. A company may apply to be listed with a certain bank – this works out better for the company’s credit score, too. The bank will check the company’s accounts and overall financials and follow a process of due diligence before listing it. Once listed, the employees of that company may avail of bank personal loans or other loans. 

What are the procedures for loan applicants from unlisted companies? Different banks in the UAE have differing requirements to offer loans to applicants from unlisted companies. Normally, the interest rates will be higher for such bank personal loans, and there will be more stringent paperwork as well. Interest rates are higher, and the salary requirements may differ. Banks can also ask for a local guarantor, at least two local references and supporting paperwork for income proof (apart from company-furnished salary slips and appointment letter).