Banks lending to SMEs believe in building long-term client relationships. Douglas Stoneham, General Manager, SME Banking-UAE and Middle East, Standard Chartered Bank, explains the process: “We start every SME relationship with an in-depth understanding of the company’s business profile, financial health and growth plans. We then propose a suitable financing structure based on the working capital cycle and nature of the customers’ business. The loan decision is based on internal assessment of the customer’s market reputation, projected cash flows, industry profile, credit history and historical financial performance, among others.”
Vikas Thapar, Head of Business Banking at Emirates NBD, adds that companies need to furnish banks with their business plans, detailing the vision, mission and measurable business objectives for a specific period.
“It is important for the financing bank to ensure that the financials of the company are satisfactory and the company has a sound financial standing,” he says. The rule of thumb is to analyse the balance sheet and other related documents over three years, which should indicate the SME’s financial health. Bank statements for the previous six to twelve months are also needed to examine the company’s cash cycle and liquidity, he adds.
There are various kinds of loans available. To give you a fair idea of what’s out there and to determine which is best for your company, GN Focus has put together this primer.
Collateral-free loans
This kind of business loan allows the borrower to lend finance without collateral or security.
Of the many kinds available, Mashreq offers Small Business Loans with amounts of up to Dh1.5 million and Self-employed Personal Loans of up to Dh400,000.
Pritam Mirchandani, RAK Bank Head of Business Finance, says: “RAKFinance offers loan amounts up to Dh2 million. Companies that have been in the business for as little as one year are eligible.”
Union National Bank offers specific Medic loans to pharmacies and medical services providers and commercial SME loans to all SMEs with tenor up to four years and interest rates from 10 per cent.
Trade finance and working capital solutions
These loans empower business units to maintain a regular cash flow for day-to-day business needs and manage trade-related risks. Typical loans here are letters of credit (LCs), trust receipts and overdraft facilities.
Mirchandani says RAK Bank offers these products to businesses that have been around for more than one year.
Ajman Bank offers LCs and the Islamic products Murabaha and Mudaraba to companies with at least five to seven years in the UAE with a repayment period of one year and a minimum loan amount of Dh3 million.
Mashreq provides unsecured lending of up to Dh2.5 million. The unique Merchant Overdraft Facilities of up to Dh2 million is offered based on the company’s point of sale throughput. “The higher end of SMEs is handled out of corporate banking under the title Emerging Corporates. Mashreq offers these clients customised working capital facilities comprising overdrafts, LCs and refinancing of LCs. Mashreq also specialises in post-sale financing comprising cheque discounting as well as factoring services that allow growing companies to leverage off their receivables from established players in the region,” says Hameed Noor Mohamed, Senior Vice-President, Head – Emerging Corporates, Corporate and Investment Banking Group, Mashreq. “This allows for risk mitigation as well as allowing the SME a greater access to working capital.” Tenor and size are decided based on the customer’s working capital/fixed asset expansion needs and interest rate and fees on the risk profile and the level of collateral, he adds.
Emirates NBD offers funded facilities, including working capital financing, factoring and cheque discounting, while LCs and guarantees make up the non-funded facilities.
Doha Bank offers a package of solutions, including credit cards, funded facilities such as overdraft, cheque/invoice discounting facility, non-funded facilities such as LC, financial/payment guarantees and contract financing requirements such as tender bond, performance bond and advance payment bond.
Standard Chartered offers overdrafts, with limits based on the cash conversion cycle and turnover of the business. Repayment is made by the customers through cash flows generated by the business, says Stoneham. Standard Chartered offers several other solutions, including products for international traders.
Medium/long-term financing solutions
This sort of term loan is designed to help business units acquire commercial property, purchase fixed assets and fleets, construct business premises or other forms of capital expenditure.
Standard Chartered offers Term Loans, a structured form of borrowing intended to finance specific long-term assets of the business. “Drawings against such facility are usually made in one amount and once the loan is drawn, further drawings are not permitted even if repayments have reduced the principal amount. Interest is charged on the individual drawings made under the loan at a rate agreed at the time of the drawing. The principal and interest is repaid in fixed monthly or quarterly instalments depending upon the nature of the underlying transaction, the cash flow it generates and the loan agreement,” explains Stoneham.
National Bank of Fujairah offers medium-term loans to help businesses acquire assets such as plants and machinery, warehouses, buildings, commercial vehicles, marine vessels and ancillary services, among others. Repayment is flexible, with tenors customised according to business cash flows.
Ajman Bank offers Ijara, a term loan for financing warehouses with a maximum repayment period of five years and maximum loan amount of Dh20 million.
Union National Bank offers a commercial vehicle loan to SMEs where the vehicle serves the purpose of the business. This is an asset-backed loan with a maximum repayment period of six years.
