Funding for Your UAE Startups and Small Businesses

Dubai is a hotspot for startups and businesses, with an average of 35,000 new companies launching each year. This growth can be attributed to the attractive business environment, including a 0% tax rate and favourable visa and government regulations. Not only does this attract foreign investment, but it also fosters entrepreneurship within the UAE. Overall, starting a business in Dubai can be a lucrative opportunity.

The UAE offers various forms of financing for businesses, including bonds, Sukuks, loans, and Murabaha. However, it can be challenging for entrepreneurs to navigate these options and secure funding, particularly with banks’ reluctance to lend to startups and small businesses. It is essential for business owners to educate themselves on the available financing options to ensure the growth and stability of their company.

General Ways of Funding for Startups

Startups in the UAE have access to funding from friends and family and other sources such as private investment platforms and crowdfunding. However, it may be necessary to actively promote your idea on social media to attract investors.

The local government and various organisations provide support and funding for small and medium-sized businesses through business incubators, accelerators, and industry associations. These resources help startups grow and succeed in the community.

The Story of Tech Startups

Venture capital, provided by both angel investors (wealthy individuals) and financial institutions, helps startups and small businesses expand and develop. In the UAE, tech startups are attracting much attention from international venture capitalists due to their fast growth. Wamda Capital, one of the most active investors in the country, has invested in 20 businesses alone.

To secure funding for a startup, seed capital is often the first source to consider. This can come from venture capital without extra fees, angel investors, or personal contacts. By exchanging cash for equity, seed funding does not require making an investment or guaranteeing it. It is typically the first step before seeking venture capital.

Bonds have become a more popular option for smaller businesses as well as larger companies. These fixed-term loans allow investors to lend money to businesses for regular interest payments until the bond is redeemed on a set date. Factors like creditworthiness and market conditions must be considered when issuing a bond.

Also Read: A Full-On Guide to Small Business Loans in the UAE

In recent years, Islamic finance products such as Ijara Financing have gained popularity among borrowers in the UAE. This type of financing allows individuals to use their assets, like real estate, as collateral for working capital while still being able to continue using and accessing them. The borrower will own the asset at the end of the lease period.

Going the Murabaha Way

In addition to a conventional loan, Islamic finance offers the option of a Murabaha structure. In this approach, the bank purchases the asset from a third party and then sells it to the borrower at a profit, with the loan secured by a pledge. However, this structure is not typically used for medium or long-term financing because the profit rate must be fixed and cannot be linked to market rates.

The Khalifa Fund, a government initiative, provides interest-free loans to small- to medium-sized businesses in various sectors, including agriculture and fishing. This support aims to stimulate and serve the national economy.

To start a business in Dubai, you must obtain a business licence and provide information such as your business name and identification for all shareholders. Having a solid business plan and potentially seeking funding support is also essential. Keep in mind that the process may be complex, but lenders are becoming more competitive.

MSMEBlog discusses issues with finding suitable funding sources for MSMEs and guides them with the procedures to acquire the necessary financing. Visit MSME Blog website for more information on MSME finance.

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