Banks reduced loans to a maximum of 250,000 dirhams ... and others stopped it
18% interest on financing small projects
Small business owners said that they find it very difficult to obtain bank financing from most banks, noting that some banks reduced the maximum financing limit to 250 thousand dirhams only, after it was one million dirhams, while others stopped financing altogether.
According to information collected by «Emirates Today» from banks, that the interest rate on small business loans currently revolves around 18% due to the increase in the main interest rate more than once over the course of 2022, and thus the increase in the cost of funds.
The banking expert, Awatef Al-Harmoudi, said, “The financing of this important sector takes place according to certain conditions that differ from one bank to another, according to the size of the company and its age in the market, in addition to the cash flows that come from its activity, in addition to the fact that the customer himself may not like the interest rate on financing.” , as he considers it somewhat high, and therefore the demand itself is determined accordingly.
Al-Harmoudi added, “The interest rate is all high now, due to the US Federal Reserve raising, and with it the Central Bank, as this somewhat reduced demand, and banks have become more conservative for fear of increasing the rate and exposure to loss.”
She stated that "the volume of small projects in the UAE is growing steadily," pointing out that banks are not the first source of financing, as there are many government funds that support this sector, as the owners of these projects prefer to rely on them, due to the low cost of financing and easy payment terms.
In turn, an official in one of the national banks, who preferred not to be named, explained that the banks’ reticence in granting financing to small companies is due to several reasons, including the decline in demand due to the high interest rate, in addition to the fact that a number of these businesses obtained loans and stopped paying due to their inability to continue. Amid competition or for other reasons, such as the travel of the owners of these projects outside the country, which causes a loss to the bank, in addition to the fact that the majority of this type of projects now prefer to take financing from government funds and the Emirates Development Bank, which gives up to five million dirhams, especially for innovative projects. .
He said, "Obtaining soft financing from government funds is much better for small businesses at the present time, as it is a suitable alternative to financing."
Funding decline
The latest data issued by the Central Bank indicated that bank financing for small and medium enterprises declined during the first nine months of this year, to reach 86.4 billion dirhams, compared to 91.2 billion dirhams at the end of last year, a decrease of 5.3% during a period of three quarters of the year.
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