They confirm that it is appropriate to take out a personal loan at the start of the activity

Two bankers: “credit rating” is the reason for refusing to finance small companies

  • The biggest problem small business owners face is not approving financing at the beginning of the company's life.

    archival

  • Amjad Nasr: "The small business owners' lack of sufficient guarantees for financing makes the risk level high."

  • Small business owners suffer from not approving financing at the beginning of the company's life.

    archival

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Two bankers said that the credit evaluation of small companies is the main reason behind banks’ rejection of financing requests, as most of these companies usually do not have a credit history at the beginning of their work, which can be reviewed, and they are owned by one person, so any delay in paying their financial obligations For the entities included in the credit report, it immediately affects his banking dealings.

This came in response to the complaints of small business owners, about the delay and rejection of approvals for financing requests, for the purposes of starting a commercial activity or expanding their business, or paying urgent purchases, stressing that despite the interest rate hike, which is currently not less than 17%, banks nevertheless refuse. financing.

Small businesses

In detail, the banking expert, Amjad Nasr, said, “Small companies usually, at their inception, do not have a credit history that can be relied upon when assessing their lending risks, so banks usually reject financing requests at the beginning, because there is no budget, cash flows, or documents.” , can be relied upon to ensure the ability to repay ».

Nasr explained to "Emirates Today" that "feasibility studies alone are not sufficient to convince banks to agree to financing, at the beginning of the company's life, because the chance of success is considered insignificant by the risk departments, even if the company has an existing structure and independent accounts and others." ».

And he indicated that «the biggest problem facing owners of small projects, when establishing a private business, is the lack of approval of financing at the beginning of the life of the company, here it is possible to resort to taking a personal loan or financing through government funds or family contributions, in a way that helps support these projects, even Have a reliable credit history.

sufficient guarantees

He continued, "One of the other challenges, which affects the approval of financing, is that small business owners do not have sufficient guarantees in return for financing, which makes the degree of risk high. Here, personal guarantees such as a salary, a deposit, or others can be provided."

Nasr pointed out that “the failure of the owners of these projects to fulfill their financial obligations, whether personal or related to the company, undoubtedly lowers the credit rating, and therefore the banks consider that this company is not eligible to take financing.”

Finance departments

For his part, a banking official, who preferred not to be named, said, "Some banks have completely closed the financing departments for small projects, because of the large losses they suffered as a result of non-payment, and the conversion of these funds into bad debts, which require setting aside provisions," explaining that "there are Also, clients took financing and left the country, and this is also one of the most important concerns of banks at the present time.

He pointed out that «the coming period, and with the application of the corporate tax, all companies, whether subject to tax or not, will have an accounting system and approved and documented financial records, which lays the right foundations for company owners to work according to a specific system, and thus monitor financial flows, and calculate profits and losses in an appropriate manner. Clarify, and then commit to making payments on time, to ensure a high credit rating.

And he indicated that «there is also importance for small business owners to be keen to pay all their obligations to the parties involved in the (credit information system), such as communications, water, electricity, courts, and others, as the entity of the small company is inseparable from the financial liability of its owner, and both of them affect the credit evaluation of the other. », pointing out that the facilities provided by the UAE, especially in innovative sectors, are very numerous, and whoever wants to start a business must move away from the traditional sectors, and focus on what the market demands in the near and far future.

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