7 Types of Loans that Can be Availed by a Small Business  

Reliablecounter Team

The UAE is the land of opportunities for  young entrepreneurs to  boom their business ideas. Talking about small businesses,they are privately owned entities, that have lesser employees or/and lesser annual revenue than a regular-sized business. The nature of a small business typically looks like:

  • They often run on a tight budget.
  • They are labor-intensive, i.e. they highly depend on labor for their functioning.
  • They are often started with the aim of satisfying the demands for a specific group of people.

Starting a business with small capital can be challenging in many ways. A successful business requires more than just a business idea. The company needs enough funds to run its operations smoothly, having a profit does not necessarily mean there is a positive cash inflow. These funds are important in case of any emergency mishaps.

If you are starting or have a business with small capital, skim through this article to further find out how the below types of loans help you taking your new business to the next level!

1.     Business Loans

These kinds of loans require you to make monthly payments for a specified tenure. The terms of the loans are decided beforehand and do not change with time. However, in case of a reducing interest rate, the amount of interest rate changes every month. If you don’t adhere to the terms and conditions, your provider has the right to terminate your contract.

The advantages of these loans are:

  • Some banks offer free credit cards
  • Some banks provide free life insurance cover
  • Business loans which follow Shariah complaints
  • Interest rates can be chosen between fixed rates or reducing rates depending on the provider
  • No collateral is needed

2.     Credit Card Loans

Small business can avail advance funds through a credit card. The drawback of such funds is the higher interest rate. It is sometimes difficult to get out of debt if the business is not performing well

3.     Small Business Association

In case the local provider does not grant you a loan in the UAE, you can apply for SBA financing. These funds are backed by the government, which is why there are consequences in case you are unable to payback.

4.     Equipment Loans

This is the ideal choice of financing if you are looking to purchase a new or used piece of machinery for your business. It is a good option for newer businesses because the equipment itself is used as a security for the loan. They have good rates depending on the nature, credit, and finances of your business.

5.     Invoice Loans

This is a type of small business loan in which you can use your pending invoices to get advanced cash from the lender. In this kind of funding, the lender gives you the advance funds equal to a specific percentage of the invoice amount and holds on to the remaining amount. You can use these funds for various operations of a business while being charged a weekly fee by the lender. When the customer pays you back, the lender returns the remaining amount after deducting the fees.

6.     Personal Loan

These funds can also be used for business purposes. They are offered by various providers, both offline and online. They usually are of a smaller amount. The personal Loan interest rates usually vary as per the duration and the credit score of the individual.

7.     Goods Financing

Various banks provide the option of financing your business goods and inventory. These kinds of funds help in purchasing raw materials and goods needed for the operation of your business.

Documentation and Eligibility

The options for a business with small capital in terms of financing are massive. It is also easy to avail a loan in the UAE with proper eligibility and documentation. The key document for a business when availing loans is the Trade License.

·       Trade License

A trade license is a permit provided by the government to a businessman that allows him to run his business. The type of trade license varies as per the nature and activities of your business.

·       Other Documents

  • A business contract (in cases of partnerships)
  • Passport
  • A bank statement
  • Emirates ID

 

You must know if you are eligible for a loan. Lenders consider factors such as the nature of the business and the profile of its shareholders/owner in order to analyze the risk associated. The general eligibility for a small business to obtain funds further explained below.

  • A business should be running for a minimum period of 1 year
  • A minimum turnover amount (varies across providers)

The interest rates for SMEs are usually lower due to their great contribution to the UAE’s economy. However, availing a loan depends mainly on the turnover and on a few other factors that are company specific such as:

  • The industry
  • Past performance
  • Financial history
  • Future plans

Note – The eligibility criteria vary across different kinds of providers, it is best to compare and choose the provider  to the suits you the most.

 

To conclude

You do not need to worry about financial requirements to fund a business with small capital when there are numerous banks come with ample options in the UAE to  fund your business. All you need to do is recognize your business needs, crack the right deal and go for it!