Small business finance: the options

OVER the past six months, banks have again started to look at the small to medium-sized (SME) business sector, despite the anaemically slow economic recovery.

SMEs are, however, benefiting on two fronts: lower rents and a more talented pool of potential employees amid wide-scale redundancies across a range of industries. This makes the SME sector – at least those companies that survived the worst of the recession – a very attractive, lower-risk, lending opportunity.

The economic environment for businesses has been improving for more than a year. The HSBC UAE purchasing managers index (PMI), a leading economic indicator, reports rising scores since April 2010 and solid domestic and international demand, according to Rana Al Emam, head of business banking at HSBC Middle East.

These factors have had a positive knock-on effect on company formation, with the Department of Economic Development (DED) issuing 3,224 business licences in early 2011, a 6% increase compared to the last quarter of 2010.

The introduction of new SME laws, to be finalised later this year, should encourage sustainable growth in the SME sector. Institutions across a range of sectors have been asked to give their views to shape the regulations.

Here, cashy looks at the financial help available to SMEs just now...

Private sector financing

HSBC has launched its annual $100 million SME fund for 2011 in conjunction with the Ministry of Economy and Free Zones.

Its other business-friendly programmes include an online cash management system called HSBCnet, document tracker services for traders, an e-Payment gateway for trading through Dubai Ports and specialist sector-specific insurance products.

Other banks are innovating, too, to meet the needs of businesses in the UAE today. National Bank of Abu Dhabi (NBAD) has recently entered the SME market, launching products in four categories. Business rent finance helps customers manage the gap between their working capital and business rental requirements. A business credit card supports day-to-day cash flow management, while customised trade finance and foreign exchange solutions manage customers’ exposures through preferential pricing and quick transaction turn-around.

Haitham Al Refaie, head of business banking at NBAD, says: “As a new SME entrant, we are relationship driven and our lending is objective specific. We have raised our market share from 9% to 12% at end of the first quarter of this year.”

Standard Chartered is also vying to take a larger slice of the SME pie. Sadia Saeed, general manager at Standard Chartered in the UAE, says: “Based on the bank’s customer survey, we are boosting customer value offerings by enhancing working capital provisions, business expansion and business protection.”

Other offerings include its international trade account, which gives preferential pricing on trade finance and remittance services.

Advisory services

Vikram Venkatraman, managing director of Salvus Strategic Advisors in Dubai, says his company has a firm footing in the market for SME financial consulting. Focussing on companies in the AED 30 million ($8.2m) to AED 250m ($68.1m) band, Salvus seeks to secure growth capital from financial institutions and advises on business planning, financing, sales, marketing and borrowing at the best rates available. This, of course, comes at a cost.

Venkatraman says: “Since most SMEs don’t have a CFO [chief financial officer] to manage balance sheets or target the right banks, we prepare full analyses of company activities for bank approvals.”

Through corporate bank facilities, Salvus has raised AED 100m ($27.2m) for businesses in a range of sectors from medical and food distribution to freight forwarding.

Public sector financing

Khalifa Fund for Enterprise Development’s (KFED) credit manager Ahsan Ali says the organisation has committed capital of AED 2 billion ($545m), which it will lend mostly on an interest-free basis to Emirati-led projects.

In this way, it aims to help train young entrepreneurs and sustain new and continuing businesses in an economy expanding its industrial base. Since 2007, 310 projects have been financed to the tune of AED 550m ($149.7m).

Sectors prioritised for licensing include information and communications technology, petrochemicals and metals, tourism, food and beverages, and engineering and construction.

Four distinct funds are available to help SMEs from start-ups to established and growing businesses. The Khutwa fund offers first-step funding for female entrepreneurs of up to AED 250,000 ($68,060) for home-based and retail businesses. Bedaya offers up to AED 3m ($816,717) to small-scale consultancies and manufacturers. Zeyada provides up to AED 5m ($1.4m) for expansion in light industries, while Tasnee lends up to AED 10m ($2.7m) to established large-scale manufacturers.

Do you have a small business? How have you found financing? Are there enough options? How difficult was it to get financial backing? Tell cashy!