How to secure business funding in the UAE

How to secure business funding in the UAE

Start-up funding possibilities in the UAE are expanding. Most UAE start-ups have traditionally been bootstrapped or financed by traditional lenders such as banks and financial organizations. 

However, business incubators and accelerators have flourished in the UAE in recent years, offering a favorable and cost-effective environment for entrepreneurship. This has resulted in an increase in activity in angel investing, crowdfunding, private equity and venture capital. 

The UAE government has also been encouraging home-grown talent by sponsoring and financing local firms owned by UAE residents through government programs such as the Khalifa Fund for Enterprise Development and the Mohammed Bin Rashid Fund for SME.

Funding Options for Your Business

1. Bootstrapping

Most start-ups in the UAE are bootstrapped, which means that the company’s promoters fund the company with their own money or money borrowed from family and friends.

It’s worth noting that the UAE Central Bank controls financial activities involving loan issuing, with only licensed banks and financial organizations permitted to do so. 

Furthermore, private persons are barred from issuing loans with excessively high-interest rates under the UAE Penal Code, which is prohibited under Sharia law (Article 409). Taking loans from private individuals or uncontrolled companies could be difficult because there may be limited legal redress if a disagreement arises.

2. SME loans

Because of small-and-medium businesses’ small assets or lack of a demonstrated track record of company operations, traditional lenders are frequently hesitant or unwilling to fund SMEs. This makes it difficult for SMEs to do business, and financing options might be costly or inflexible as a result.

3. Crowdfunding

Crowdfunding is the technique of raising funds for a business venture or project from a large number of people via an electronic platform. There are two types of crowdfunding that are significant for obtaining cash for a business:

  • Loan-based crowdsourcing (or peer-to-peer lending)
  • Equity crowdfunding

4. Angel Investors

The UAE’s growing business ecosystem has resulted in an increase in the number of angel investors. 

Angel investors (usually high-net-worth individuals) invest in exchange for a piece of the company’s stock. 

In addition, the UAE has a number of angel investor networks, including the Dubai Angel Investor Network, the Women’s Angel Investor Network, and the Falcon network, all of which have aided in the growth of the angel investment scene.

5. Private equity and Venture capital

The UAE is slowly increasing its use of private equity and venture capital as funding sources. venture capital funds usually invest in start-ups or early SMEs (often technology companies) in exchange for modest equity holdings. Private equity funds, on the other hand, frequently acquire majority ownership in established businesses in traditional industries.

Because of the lengthy licensing process, not many private equity and venture capital funds are located onshore. Legal and regulatory constraints, legal system uncertainty, and issues structuring investments within the UAE are among the challenges. As a result, private equity and venture capital investors typically organize their funds in the DIFC or offshore in a nation with more favorable tax treatment.

6. Strategic Investment

Strategic acquisitions can also be used to fund UAE enterprises, especially if a foreign investor is looking to enter the UAE market and grow inorganically. Recent transactions in the UAE include Amazon’s acquisition of and Uber’s acquisition of Careem.

7. Business accelerators and incubators

Although most business incubators (and accelerators) do not provide cash, they can provide a variety of packages and services that can help start-ups and entrepreneurs save money. The Dubai Future Accelerators, In5, Dubai Technology Entrepreneur Centre (DTEC), Hub71, ImpactHub, TechStars Dubai, and Fintech Hive are some of the most important business incubators in the UAE.

8. Local SME assistance

Government initiatives such as the Khalifa Fund for Enterprise Development and the Mohammed Bin Rashid Fund for SMEs can help UAE-based SMEs get finance. As a result, in June 2007, the Khalifa Fund was formed to assist indigenous businesses in Abu Dhabi. The Khalifa Fund began with a total capital of AED 300 million and has since grown to AED 2 billion, covering the whole UAE. The Mohammed Bin Rashid Fund for SMEs, based in Dubai, intends to fund innovative pilot ventures established by UAE nationals.

9. Initial Public Offerings (IPO) in the United Arab Emirates

The UAE Companies Law and regulations issued by the Securities and Commodity Authority govern the issue of securities by onshore companies (SCA).

Only public joint-stock companies may offer securities through a prospectus under the UAE Companies Law; other companies, whether incorporated in the UAE (mainland or in a free zone) or in a foreign jurisdiction, are prohibited from advertising, including the invitation to a public subscription, without the SCA’s approval.

As a result, limited liability corporations (LLCs), which are the legal structure used by many start-ups in the UAE, are unable to raise funding from the general public. As a result of this, and the UAE’s underdeveloped capital market, local start-ups seldom make it to the IPO stage.

10. Debt Instruments

Only public or private joint-stock businesses, subject to shareholder approval, can issue bonds or sukuks (including instruments convertible into shares) in the UAE. The Companies Law and the SCA regulations will also apply to the issuance of such bonds and sukuks. Most start-ups do not have access to this option since they are not incorporated as public or private joint-stock companies.

How KLOUDAC can help you?

KLOUDAC assists start-ups in how structuring their businesses to optimize their investment opportunities. For our startup clients, we design the founders’ agreement, provide equity split advice, evaluate commercial contracts, and draft investment papers. We also connect prospective businesses with the right partners in order to seek funding.

KLOUDAC Accounting Firm Dubai, UAE

KLOUDAC is a recognized accounting firm in Dubai, UAE with 15 years of service experience. We have built connections with over 500 customers. It has also won the certification of Xero Payroll and certification of Xero advisor from the world’s leading online accounting software – XERO. Moreover, KLOUDAC is a golden champion partner of Xero.  

Accounting and Bookkeeping are more convenient for the SMEs via KLOUDAC since they provide their clients with a whole package of services such as Financial Consultancy, Business setup, Audit and assurance services, Taxation services, and Recognized accounting software, and more.