Global Compliance

Obtaining Corporate Loans for Foreign Businesses - UAE

Introduction

The United Arab Emirates is known around the world as a business hub. In the year of 2017, it drew in around USD11 billion worth of Foreign Direct Investment (FDI). This is due to many factors including the countries good strategic position since it is located near to Africa, Asia, and Europe. Also, the Country is quite politically stable, has a well-developed infrastructure, and a friendly business atmosphere.

The Country has a central bank which is called the Central Bank of the UAE. This bank manages all of the Country’s national and foreign banks and has the power to form new legislation relating to the financial sector businesses of the United Arab Emirates. The Central Bank has the following jobs and responsibilities:

• Acting as the government bank;
• Ensuring the regular and steady growth of the country’s financial sector and economy;
• Producing and distributing the country’s national currency;
• Producing legislation for all other banks to follow;
• Managing and distributing the countries national currency. The central bank also responsible for maintaining the fixed exchange rate of the Dirham to the US dollar.

Looking at the country’s attractiveness as a business hub, it should come as no surprise that obtaining a corporate loan in the country is a well-regulated activity.

However, there would be differences for a foreign entity and a local entity. The differences would not be as great as they are for private loans, though the processes of obtaining the loan might differ slightly.

This practical guide shall look into the processes and steps required for a foreign corporate entity located within the Country to obtain a bank loan.

How to Obtain a Loan

Requirements to apply for a corporate loan:
There are a few requirements before a business can apply for a loan. These standards must be met or else the bank shall reject the loan application. The requirements include:

• The business must be registered for a specifically stated amount of time (around 2+ years).
• Have a corporate bank account for a specifically stated amount of time (varies from around 1-2 years minimum).
• Must have a business landline number and P.O.Box.
• Phone and electricity bill must be under the business’ name.
• Records of business invoices, and must be able to show then contracts with suppliers and consumers.
• Must have a physical office.
• A website is required.
• A business card must be presented.

These are the general requirements, though it is the responsibility of the bank to ensure they only provide loans to those that they see as being capable of repaying them. As such, they may have additional requirements and questions they would want answering by the company before the business can commence.

Types of loans:
There will be a few types of loans that a business could go for, depending on what they plan to spend the money on. The purpose of the money would also have to be made clear to the bank, as different types of loans would have different requirements and limits. Types of corporate loans include: 

• Business start-up loans;
• Property financing loan;
• General business loan.

On top of this, there would be loans from Islamic banks. However Islamic banks as mentioned under the law Federal Law Number 6 1985, under which Article 13 states that an Islamic bank must perform its banking duties under the same laws as conventional banks, except where it clashes with the Sharia law (this is primarily only in the matter of interest).

How to apply:
In order for a business to apply for a corporate loan in the United Arab Emirates, they can begin the application process through multiple paths.

• The online path – this involves going to the appropriate bank’s website, and if they provide the option, fill out the online application form. This will inform the bank of an individual’s interest in obtaining the loan and will allow some of the details and information to be cleared up.
• On top of this, an individual can also simply choose to send an email to the bank and wait for them to get back.
• The live approach – this approach to commencing the loan would involve either calling the bank or going into a local branch of the bank to begin the process.

In the end, though, these methods simply get the ball rolling; and more information and time will be needed before the loan will actually be issued.

Interest:

As previously mentioned, Islamic banks do not charge interest on loans. Rather, they have a different way of obtaining profit. 

Conventional banks, on the other hand, charge competitive interest rates. Interest rates, according to the UAE Civil Code Article 714, shouldn’t be overly advantageous to a single party. As such, there would be a limit to the interest rates that can be charged. The banks in the UAE generally do not go above a 15% flat rate for corporate loans.

The Contract: 

Once the basic details of the loan have been decided, a contract can be drawn up. Contract law is covered under the UAE Civil Code. It covers quite a large amount of things and can be found in Book 1, Part 1. Section 2 covers the production of a contract, what should be included, and also what makes a contract valid. 

The loan contract with the bank would include the start and end dates, the monthly payment value and interest payable, and also the details of what should happen in the case of failed payment.

Once agreed upon and signed by both parties, the loan is then to be issued to the business.

Choices:

There are many national and international banks in the UAE. All banks are listed on the Central Bank’s website, and while they all offer competitive interest rates, they also offer further perks for obtaining a loan specifically through them such as possible insurance, less paperwork required etc. 

Most banks will also have a cap on how much they are willing to lend to anyone. These caps will vary per bank, and there may be another factor a business would want to consider.

It should come as no surprise that corporate loans in the UAE are well-regulated. The Country has a booming foreign business market, and many investors are looking to set up businesses there. As such, the systems are quite easy to move through and the requirements generally are what one would expect.

Glossary

• Corporate loan: a loan provided to a company in order for it to make business-related purchases. This is as opposed to a personal loan which would be for a private individual to make their own non-business-related purchases or cover costs.
• Central Bank of the UAE: The United Arab Emirates’ governing bank and creator of bank legislation.
• The Central Bank Law of 1980: this law sets out the powers and responsibilities of the central bank. Article 2 mentions the banks' official rise and the rest of the law covers the many aspects of banking including relationships with other banks, currency regulations, and objectives.
• The UAE Civil Code: the civil code covers many aspects of the country’s civil law system. Though there are no laws specifically relating to obtaining of a corporate loan, there is the article which covers loans in general and as such, certain aspects of acquiring a corporate loan would be covered in this code.
• Union Law number 10 1980: this is a further law that gives the central bank its powers and responsibilities.
• Islamic banks: these are banks that follow sharia law. The primary difference is that they do not charge interest on their loans.
• Conventional bank: This would include any bank that is not an Islamic bank.