Small- and medium- sized businesses make up the vast majority of companies in the Emirates, so it is perhaps no surprise that they have a choice of banks willing to offer them services.

Indeed, the Khalifa Fund estimates that 40 out of 52 banks in the UAE offer SME lending services.

However, the downside is that it can be extremely difficult to get working capital finance for smaller companies from banks, according to Vishnu Deuskar, managing director of Salvus Advisors JLT, which consults with SMEs.

High rejection rate

He says: “Many SMEs do not meet even the minimum requirements of the bank, such as audited financials, track record etc. Typically you would have to resort to personal loans and business loans which are available in small amounts. However, these are expensive and the ability to service and repay these loans must be assessed properly before taking such a loan.”

Just four percent of lending in the UAE is to SMEs and the Khalifa Fund reports that the rejection rate for SME lending is between 50 percent and 70 percent.

This puts added pressure on SME importers and exporters. “Try to secure terms from your importer/ exporter that match your working capital cycle so as to avoid stress on your resources. This is very important because many SMEs do not have banking facilities that they can fall back upon,” says Mr Deuskar.

If you are lucky enough to get funding from a bank, they typically require three years’ audited reports. And most banks consider themselves as a partner, says Jitendra Gianchandani, chairman and managing partner of Jitendra Consulting Group, which has a range of clients in the SME sector – so they like to see SMEs keep transparent accounts.

There are six points to keep in mind when choosing a bank, says Alexandar Williams, director of the strategy and policy division of Dubai SME.

Compare SME accounts | Compare SME credit cards ]

1. Know exactly what you’re funding

“First, the SME must know quite precisely the need for financing, and the reasons (short-term vs long-term needs), and is convinced that debt financing is the way forward to meet their firm’s financing needs (since there is also the equity route). It should also ensure that it has the capacity and capability to service the loan,” he says.

2. Get a business account first

The SME should always open a business account with a bank first to try it out. “This way, it will familiarize itself on the operations and services, the level of professionalism and advice provided, as well as other support (for example, account management services),” says Mr Williams.

[ Related: Guide to bank accounts for SMEs ]

3. Compare all financing options and their terms

The SME should look at the various SME financing schemes and the associated terms that will suit the business and repayment plan in relation to the SME’s cash conversion cycle for cash flow/ trade financing.

“For more complex loans like a factory loan, the SME must be able to meet the business and financial repayment plan requirements of the concerned bank.  The best option may not necessarily be the cheapest interest rates, but rather the package of services,” adds Mr Williams.

Compare SME business finance | Compare SME equipment finance ]

4. What support does the bank offer?

Look at how banks support fellow SMEs in good and bad times, such as offering loan restructuring and deferred repayment arrangements during downturns and dips in business cycles to ease their hardship, Mr Williams says.

5. Treat your bank like a partner

“The SME should ensure that the bank takes a ‘development’ perspective of the SME, rather than just a commercial loan project.  That way, the SME will know that the bank is a long-term development partner for the SME’s long term growth,” says Mr Williams.

6. Check the bank’s post-loan services

The SME should look for a bank that provides services such as networks, knowledge of financial management and other capability services as part of its package.

[ Related: A guide to SME loans ]

Other options

“UAE banks offers many options for SME bank financing, but the most common form is trade financing, since Dubai SMEs are mainly in the trading sector. However, more banks are increasingly offering other schemes like micro-financing, leasing, factoring and discounting, as options depending on the needs of SMEs and their stage of growth,” says Mr Williams.

“Besides banks, SMEs can also look to finance houses for their financing requirements. SMEs should note that, in the main, banks and finance houses will only finance profitable and asset-rich companies, as they are in the business of ensuring a healthy return for their shareholders.”

The majority of banks in the UAE offer lending services to SMEs. But as the experts point out, that does not mean it is easy to get finance if you are a small business. The rejection rate is high, but following a few steps – such as keeping audited reports – should help you be more successful.

Growing with you

However, that does not mean you should choose a bank just because it is willing to lend you money.

Choose one that will give you what you need, says Mr Deuskar. “If you expect high growth, the bank should be one that will stay with you (i.e. give you bigger facilities as you grow) so that you do not need to add a new bank every time you need more funds.”

And as always, do your research and compare everything from interest rates to charges and security before you sign up.