Introduction
Growth comes from an investment mindset. When scaling your business whether that’s through expanding your construction company, upgrading your manufacturing facilities, buying commercial vehicles, or investing in cutting-edge medical equipment, the right assets are essential to outpace competitors and lead your industry.
But what about the price tag on this crucial expenditure? Buying business equipment outright ties up vast amounts of capital – a solitary excavator, production machine, delivery fleet or diagnostic system can run into the hundreds (if not millions) of dirhams. This means for most businesses, paying for equipment purchases upfront reduces working capital and restricts cash flow, leaving no room for future growth opportunities.
That’s where our asset and equipment finance service offers a compelling business funding solution.
Instead of needing to pay for your whole purchase upfront, you’ll have an agreement in place that lets you spread the cost over a set amount of time – meanwhile your asset will be earning you money right away.
Repayments can also be arranged according to how much working capital you have available, which means they won’t interfere with normal business operations.
Every kind of organisation, whether you’re a small to medium-sized enterprise (SME) or a big corporate, uses some form of equipment finance in Dubai and throughout the rest of the UAE, including things like asset finance, machinery loans, and asset-based lending, to secure a variety of useful products.
In this comprehensive guide, you’ll learn:
- What asset and equipment finance is
- How it works in the UAE
- Different financing structures available
- What assets can be financed
- Which industries benefit most
- Eligibility requirements
- Islamic (Sharia-compliant) asset finance options
- Common mistakes businesses should avoid
How do I select the best financing structure to drive my long-term growth? Whether you are buying construction machinery, industrial equipment, commercial vehicles, medical technology or manufacturing machinery, an understanding of how asset finance works will enable you to make smarter choices that protect your business’ liquidity.
What Is Asset and Equipment Finance in the UAE?
Asset and equipment finance is a specialised form of business financing allowing businesses to buy business assets without having to pay for the whole price upfront.
Typically, rather than spending up a big chunk of capital on buying this kind of asset outright, you can get a bank (or other financial institution) to fund either some or all of its value instead. You’d then repay your financier via regular, fixed payments, made each month/quarterly over an agreed time frame.
In contrast with a typical business loan which allows you to use your money however you please, an asset finance solution will typically be targeted at specific identifiable business assets.
And given that the asset itself will usually serve as your lender’s main security over your assets, it will also often rank as one of the most practical ways of accessing funding when you’re buying new equipment.
This financing approach allows businesses to:
- Preserve working capital
- Improve cash flow
- Acquire higher-quality equipment
- Expand operations more quickly
Another reason to consider asset finance as an option could be that you want to generate revenue prior to paying off your asset. Asset financing allows you to use this strategy – it’s not just about accessing money for purchase anymore.
It can become more of a strategic option when used by growing companies.
Why Asset Finance Is Growing In Dubai
Dubai is consolidating its position as one of the strongest business hubs around the world. The UAE government is investing massively in infrastructure development, industrial and logistics growth, and manufacturing. Along with the increase in the number of businesses and healthcare industry growth, a whole range of equipment is now needed.
From the contractors building the infrastructure to the logistics companies increasing their fleets, almost all businesses have to develop and upgrade their operations at a rapid pace while keeping costs as low as possible.
Many businesses are going for financing options as it helps them use their capital to grow the business while it provides the financing for the equipment they need.
Asset financing companies understand the capital and operational needs of businesses and are flexible in the solutions they provide.
As an example, a construction company that recently got awarded many contracts is in a position where it needs to buy excavators and cranes as well as other equipment to fulfill those contracts. Due to the nature of the industry, construction companies will run out of working capital very quickly if they have to purchase all the equipment needed to fulfill those contracts.
Because of equipment financing, the construction company can buy the equipment needed to fulfill even the largest and most urgent contracts while spreading the repayment over several years.
This operational cash flow financing approach is useful in almost all industries.
- A logistics company can buy more delivery vehicles.
- A manufacturing company can buy better production equipment.
- A healthcare company can buy new diagnostic equipment.
- A hospitality company can buy equipment to renovate the kitchen.
How Asset and Equipment Finance Works
While the finance structures may differ from one lender to another, the process is generally straight forward.
Step 1 – Define the Asset
The business identifies the machinery, vehicle, equipment, or technology that it intends to acquire and gets a supplier quotation or invoice.
The asset can include commercial vehicles, excavators, CNC machines, MRI scanners, forklifts, solar system, manufacturing equipment, and more.
Step 2 – Apply for Finance
The lenders review the application and evaluate the following:
- Company background and trading history
- Annual turnover and cash flows
- Level of existing liabilities
- Banking credentials and creditworthiness
- Asset appraisal (based on quotation)
Step 3 – Determine Funding Structure
If the application is approved, the terms and conditions of financing are agreed upon, including:
- Finance amount
- Down payment (optional)
- Tenure of the agreement
- Monthly installments
- Profit margin or interest rate
- Security requirements
The finance package should be determined based on the company’s income and the lifetime of the asset.
Step 4 – Purchase the Asset
On approval, the finance company releases the payment to the supplier.
The business acquires the asset, free of charge, and starts benefiting from day one.
Instead of waiting to save up for the equipment, the company starts recording profits immediately after the purchase.
Step 5 – Repayment
The company servicing arrangement allows the business to fund its needs while retaining a significant portion of its cash flows.
Depending on an agreement, the asset may be owned by the company from the word ‘go’ or upon full repayment of the finance amount.
Many entrepreneurs believe that buying equipment outright is always the best option when it comes to the costs involved.
In reality, this might not be the case.
Using all available cash may lead to limited liquidity in case of unexpected expenses or future opportunities.
Through asset financing, companies can keep cash liquid while still investing in their expansion.
Some of the major advantages include:
Benefit | Business Impact |
Preserves working capital | Allows to keep cash for operations |
Improves liquidity | Avoids large upfront capital expenditure |
Predictable repayments | Allows for easier budgeting |
Access to modern equipment | Improved effectiveness and competitiveness |
Faster business expansion | Immediate acquisition of assets without the requirement to build cash reserves |
Financing leverage | Enables companies to invest and retain flexibility in their finances |
We can easily manage if we will only take, each day, the burden appointed to it. But the load will be too heavy for us if we carry yesterday’s burden over again today.”
Faizan Shaikh
