Funding Sources for Startups in the UAE

Starting your new business brings on a lot of excitement and promise, nevertheless, it involves considerable effort and responsibilities. One of the most common demands of starting a business is looking for a source of funding at some point.

There are many options for small business loans which include government loans, bank loans, business lines of credit, business credit cards, crowdfunding, angels investors, business incubators, and other short and medium-term loans.

We have put together a list of everything you need to know about startup funding in the UAE including what you should and shouldn’t do when deciding on a source of funding for your startup business in Dubai, UAE

Startup Funding – What Should You Know About It?

Startup funding is the process of obtaining financial resources to launch, grow and sustain a new business. Here are some key things you should know about startup funding:

Sources of funding: There are various sources of startup funding, including personal savings, friends and family, angel investors, venture capitalists, crowdfunding, grants, and loans.

Funding stages: Startup funding is typically categorized into different stages, including seed stage, early stage, growth stage, and exit stage. The funding requirements and sources may vary at each stage.

Business plan and pitch: A strong business plan and pitch are essential to secure startup funding. Investors and lenders want to see a clear understanding of the market, competitive landscape, financial projections, and growth potential.

Equity vs. debt: Startup funding can be obtained in the form of equity or debt. Equity funding involves selling ownership stake in the company to investors in exchange for capital, while debt funding involves borrowing money that must be repaid with interest.

Dilution and valuation: Equity funding can result in dilution of the founders’ ownership stake in the company, while also affecting the company’s valuation.

Due diligence: Investors and lenders conduct thorough due diligence on a startup before providing funding, which includes reviewing the business plan, financials, legal documents, and management team.

Exit strategy: Investors expect to see a clear exit strategy for their investment, such as a merger, acquisition, or IPO.

Legal and regulatory compliance: Startups must comply with legal and regulatory requirements related to fundraising and securities laws, such as filing a Form D with the Securities and Exchange Commission (SEC) in the US.

Financial management: Once funding is secured, startups must manage their finances effectively, including tracking expenses, forecasting cash flow, and ensuring financial sustainability.

Overall, startup funding is a critical aspect of launching and growing a new business, and requires careful planning, preparation, and execution. It is important for entrepreneurs to understand the various sources of funding, funding stages, and legal and regulatory requirements associated with startup funding.

Startup Funding Sources

1. Crowdfunding

Crowdfunding basically means funding a project by raising money from many people through licensed online platforms. 

There are several types of crowdfunding:

• Donations model: in the type funders donate money for a cause while not expecting any returns for their grants.
• Rewards model where funds are asked for in exchange for a future reward.
• Crowd-sourced equity funding (CSEF) where the investors provide funds in exchange for receiving shares in a company.
• Debt or peer-to-peer lending model where a lender provides a loan and expects it to be paid back with interest at an agreed rate, or a rate fixed by the crowdsourcing platform.

Some examples of crowdfunding platforms in the UAE:

• DubaiNEXT
• Beehive
• Eureeca

2. Bank loans

Although getting a bank loan in UAE is far from a simple procedure, given the list of requirements and criteria which include strict credit conditions, collateral, and high demands on your credit score, this option is still a great way to fund your startup business, especially with the lucrative interest rates that banks offer.  

You need a valid trade license to apply for the bank loan, which you’re required to pay back within 2 to 24 months.

Many local banks operate startup funds that are initiated by the ministry of finance and given to selected recipients through the Emirates Development Bank.

Let us help you open your corporate bank account.

3. Angel investors

Angel investors, also known as informal investors, seed investors, or business angels, are entrepreneurs or firms willing to support promising startups with funds while getting ownership equity or convertible debt in return.

Angel investors are usually the first round of funding for a startup. This type of lending is more focused on helping startups take their first steps, rather than the possible profit they may get from the business, making it a more favorable option for businesses in their early stages.

Some of the main Angel investors in the UAE are:

• Angel Network Middle East
• Dubai Angel investors
• Womena
• Falcon network

4. Venture Capitalist (VC)

A venture capitalist (VC) is a private investor that provides capital to companies with high growth potential in exchange for an equity stake.

In comparison to Angel Investors, Venture Capitalists usually have stricter funding conditions and take longer to make investment decisions, putting in higher amounts of funds in return for higher ownership equity of companies and a more active role in their management.

Although Venture Capitalists in Dubai are a funding option for startups of all sizes, this type of investors usually prefers to invest in later-stage companies that show higher prospects for profits.

Use our cost calculator to know the accurate cost of your business.

5. Business Incubators

Business incubators are programs created and run by governments, startup organizations, or successful entrepreneurs, dedicated to helping startups develop and grow at a lower cost in the early stages of their business incubation.

 Business incubators are designed to equip companies in their beginnings with the knowledge and tools to stand on their own by providing office spaces, administrative functions, mentorship, and access to investors and capital to help them achieve a minimum viable product (MVP) and create a well-built plan to take that product to markets.

In return for their services, incubators either charge a fee or take it as an equity stake in the startup, and their period can last from a few months to several years.

Do’s and Don’ts of Funding Startups

1. Thorough research.

The first question to ask yourself is why you need the funding. Determining the objectives of the funding will help you research the best options of resources that are available.

2. Good planning.

Other key factors when researching your small business funding are preparation and timing. Take your time to prepare your business plan and decide the best time to have the funding and the right ways to use it. Designing a business plan will help you decide the best type of small business funding.

Read more about the principles of building your business plan

3. Be open to all options.

Shop around for the best lenders with the terms that suit you; It’s never a wise decision to take the first funding source you find. Be open to knocking on new doors, and carefully study the terms and conditions for repayment.

Explore some of the funding resources in the UAE

4. Study every detail.

One of the main criteria of small business funding is the interest rate, which is a valid concern for any borrower, but besides the interest rate, you should also consider other important factors, like how much the lender is willing to fund based on your assets, the loan’s term and conditions, the guarantees you’re required to provide and the flexibility of the repayment.

5. Only ask for what you need.

Once you decide on a method to fund your small business, you might feel tempted to ask for as many funds as they’re willing to give. But you need to be careful at this stage; You don’t want to increase your debts by asking for funds you’re not positively sure you’re going to pay back on time. On the other hand, being too careful and asking for less than what your business plan is advising will simply leave you in a shortage of funds, especially in the case of unexpected expenses.

6. Track your finances carefully. 

When it comes to funding your small business, bookkeeping is one of the most important parts of your management practices. Your lender will be asking for detailed information about the financial situation of your company. It’s also crucial for you to know where you’re standing financially at every stage of your project.

7. Do have extra funds.

As a small business owner, you must have enough money to ensure that you can pay your bills and living expenses during the first year of your company building.

8. Leverage the expertise of professionals.

Seek the help of an experienced accountant, bookkeeping service, or attorney. Dedicating a part of your budget to such services will only pay back well, in terms of your money and time.

Advantage of Choosing A Free Zone for your Startup Business

There are several advantages of choosing a free zone for your startup business, which include:

• 100% foreign ownership: In a free zone, foreign entrepreneurs can own 100% of their business, without the need for a local partner or sponsor.
• Tax incentives: Free zones offer tax exemptions and incentives, such as no customs duty on imports and exports.
• Simplified procedures: Setting up a business in a free zone is relatively quick and easy, with streamlined procedures for licensing, registration, and visa processing.
• Infrastructure and facilities: Free zones provide modern infrastructure and facilities, such as high-speed internet, advanced telecommunications, and state-of-the-art offices and warehouses, which are essential for startup businesses.
• Access to a wider market: Free zones are strategically located to provide easy access to global markets, with well-established trade and logistics networks.
• Flexible business environment: Free zones provide a flexible business environment, with fewer regulations and restrictions on operations, allowing startups to innovate and experiment with new business models.

Why Choose SPC Free Zone?

Conveniently located in the heart of Sharjah, the SPC Free Zone is a one-stop-shop free zone, established in 2017, and provides a variety of business setup services and state-of-the-art infrastructural amenities, including coworking spaces, office space, warehouses, and retail stores, all within a business-friendly regulatory framework.

SPC Free Zone promotes entrepreneurship and offers business support services, including 100% foreign ownership with zero paid-up capital.

Whether you need a general trading or e-commerce license in UAE, we offer more than 1,500 commercial activities. Additionally, you can apply for a dual-licensing option that provides mainland and free zone on the same license and up to 20 visas under that license. Furthermore, the on-site immigration services allow you to get your license in just 45 minutes, and your UAE residency visa in 5 working days.Contact SPC Free Zone for help with your business setup in the UAE today!

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