How are small- and medium-sized enterprises (SMEs) in the UAE financing the growth of their businesses? What type of business loans are most popular?

We interviewed 157 SME owners, founders and CEOs to gauge their opinions about business banking in the UAE.

Bank financing not easy

We found that 28 percent of the respondents had taken some form of financing from a bank – but of those, more than half (58 percent) said the process was not easy. Some common responses from SME owners were “there are too many formalities”, “there’s a lot of paperwork”, and “not all banks are open to giving loans”.

Founders funding their business themselves was, not surprizingly, the most popular option for all SMEs (31 percent), particularly for smaller companies of 1-10 employees (42 percent) who seem to have the toughest time securing a bank loan. New business owners had similar experiences.

One respondent said: “Banks are not well equipped to evaluate a new business plan and tend to lend based on past performance of cash flows. Fine if you are established, but not helpful for start-ups.”

Another added: “Start-ups in services, particularly consulting, requires a lot of faith in the individual, regardless of the thoroughness of the business plan. Bank financing is out of the question, as they generally require three years of audited accounts to even consider you.”

As the company size grew, SMEs were more likely to approach investors and banks. Some 26 percent of respondents chose to get help from family and friends.

SMEs in the trading sector were most likely to go to a bank (34 percent), compared to 32 percent of service providers and 20 percent of manufacturers. However, the general feeling was well summed up by this comment: “SME is under-serviced as a sector.”

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SME survey results: In a nutshell

  • Credit cards: Some 60 percent of the respondents said they do not have a business credit card. One in 10 SME owners use a personal credit card for their business transactions.
  • What they’re financing: Among the types of finance available for SMEs in the UAE, trade financing solutions and loans for working capital are most sought out by respondents across all sectors (55 percent). However for manufacturers, who have bigger investments to make initially, commercial real estate and equipment finance are more popular finance needs.
  • What’s important in SME financing? For two-thirds of the companies, the interest rate offered by a bank is the decisive factor when opting for a business loan. Other highly popular parameters are the maximum loan amount (20 percent) and speed of approval (15 percent).
  • How do they choose their bank? When it comes to business accounts for meeting daily banking needs – the first thing an SME would normally go to a bank for – most SMEs said that they choose their banker by word of mouth, or recommendations and reviews (67 percent in total). Many respondents also look for banks with a good presence world-wide, “One that is more global, and easier to transfer funds between internal accounts,” because “Once you’ve picked your bank it’s pretty hard to move.”
  • What features are important in an account? The key features respondents look for in their current account are maintenance fees (85 percent), online banking facilities (80 percent) and customer service (76 percent). Convenience in banking as a requirement was especially true for smaller companies where SME owners take care of finances themselves, since they don’t have a team to handle it. One of the respondents said: “We’re looking for quick and positive response to our queries, not to hear the words ‘It’s bank policy’.”

[Compare SME bank accounts | Compare SME credit cards]

SME survey – infographic survey infographic: A third of UAE SMEs take business financing

SME survey results: In numbers

How did you fund your business?

Some 31 percent of SMEs fund their company themselves, 28 percent go to a bank and almost as many to family and friends. Only 10 percent have business investors.

Funding source %
Self-funding 31%
Bank 28%
Family/ friends 26%
Investors 10%
A mix 6%

What kind of bank loan did you get?

A huge 55 percent are taking loans out for trade finance and working capital, compared to eighteen percent for equipment and nine for operational expenses.

Finance type Manufacturing Services Trading Others TOTAL
Trade finance/ working capital 4% 9% 29% 13% 55%
Equipment finance 5% 2% 4% 7% 18%
Commercial (real estate) finance 7% 0% 4% 5% 16%
Unsecured (operational expenses) 0% 0% 2% 7% 9%
Deposit for Immigration 0% 2% 0% 0% 2%
TOTAL 16% 13% 38% 33% 100%

What kind of bank loan did you get (by sector)

By sector, the pattern changes somewhat – manufacturers are more interested in getting finance for real estate or equipment.

  Manufacturing Services Trading
Trade finance/ working capital 22% 18% 21%
Equipment finance 33% 4% 3%
Commercial (real estate) finance 44% 0% 3%
Unsecured (operational expenses) 0% 0% 1%
Other 0% 79% 72%

What is most important to you when choosing finance?

Across the board, the story is the same when it comes to the key features of financing – interest rates, amount and speed.

Factors %
Interest rate 64%
Amount I can borrow 20%
Speed of approval 15%
Tenure of loan 1%

For the 60% who don’t have a credit card – why not?

Some 72 percent of SMEs who don’t have a credit card say they just don’t need one, and 11 percent use their own personal card (perhaps taking advantage of air miles or rewards?). Eight percent say they don’t qualify or the bank won’t give them a card.

Reasons %
No need 72%
Use personal card 11%
Bank won’t give one/ don’t qualify 8%
Not available 4%
Other 6%

How did you choose your bank?

A third of SMEs rely on word of mouth and a third on recommendations and reviews when making the vital choice of who to bank with. And 14 percent just use their personal bank.

Reasons %
Word of mouth 34%
Recommendation/ review 33%
Same bank you use for personal banking 14%
Advertisement 4%
Other 14%

What’s important when choosing a bank account?

Three factors are key to a bank account, SMEs tell us – maintenance fees, online banking and customer service.

Features %
No/ low maintenance fee 85%
Online banking availability 80%
Good customer service 76%
Lending facilities 53%
Number of branches 36%
Dedicated relationship manager 23%
Cash management – payments, transactions, payroll 17%

How long did it take you to open a bank account?

Generally SMEs say it takes less than a week to open a bank account but a quarter take up to two weeks and a lucky 13 percent said it only took the day.

Length of time %
Same day 13%
Less than a week 58%
One – two weeks 23%
More than two weeks 6%