Gulf Finance FINANCING SMES’ GROWTH

 

Gulf Finance is an established business finance company focusing on the needs of small and medium sized businesses. Capital Business caught up with David Hunt, CEO, Gulf Finance Corporation (GFC) to understand how they established a market leading process in lending to small businesses throughout the years.

 

What is the small business finance model of Gulf Finance Corporation?

 

As a specialist finance provider to small and medium sized enterprises (SMEs) from a range of different sectors, I believe that one of the key factors to GFC’s success is our ability to quickly understand our clients and their needs. Our clients come from different industries such as oil and gas, power, logistics, manufacturing and healthcare. The first step in assessing these businesses therefore involves a thorough analysis of the clients’ business model, sector, background etc. The experience and expertise of the GFC team in combination with the outcome of this exercise is what allows us to specifically tailor an individual service that will suit each client’s specific requirements. This could be a term loan, a short term facility tied to a particular contract or providing guarantees to release cash to finance a project.

 

We have provided growth capital to a number of clients who, as a result, have successfully been able to grow their businesses substantially and expand outside UAE’s borders. Recently two of our longstanding clients, Coffee Planet and Romana Water, were admitted into the 2013 Dubai SME 100 ranking, an initiative under the Dubai Department for Economic Development that recognizes the Emirate’s 100 top performing and fastest growing SMEs.

 

What is the Gulf Finance niche model for financing SMEs?

 

While there are many other institutions providing financing to SMEs in the UAE, we believe that GFC’s speed of execution combined with our team’s knowledge and experience is what makes us stand out. We recognize that cash is the life blood of small businesses so providing financing as quickly as possible is one of our USPs. Once a client submits all the correct documentation, we are able to disburse funds in a matter of hours.

 

Could you please tell us more about the asset finance solutions you offer?

 

GFC’s asset based lending solutions provides clients with financing to buy assets such as inventory, machines or other equipment that is essential for the business to grow. We normally finance capital equipment for companies over a three to four year period.

 

We see a high demand for these types of solutions from our clients typically because conventional banks are reluctant to provide this length of finance and tend to be more willing to provide short term trade finance facilities. SMEs approach GFC because we offer alternative sources of finance that enables them to grow their operations.

 

Which kind of bottlenecks do you face in the UAE? Can you reveal the legislation aspects?

 

The UAE has come a long way in terms of introducing new rules and regulations to support SMEs with policy makers working to create a conducive business environment and we do not experience many bottlenecks. New initiatives aimed at further improving the environment are consistently implemented. For instance, the recent introduction of a new direct debit system that allows for payments from customers’ accounts to be automatically collected, and the recent establishment of the Al Etihad Credit Bureau.

 

In your opinion, are SMEs in the UAE getting enough support to flourish?

 

As mentioned, there are plenty of initiatives that support SME growth in the UAE which is very encouraging. However more could be done to boost funding. According to our own estimates, only four per cent of bank lending in the UAE is directed towards SMEs compared to 24 per cent in developed economies, and probably less than 50 per cent of SMEs have accessed banks for short and long term finance. A key constrain to lending has been the lack of financial information and accurate historical data on SMEs, but we do see that this is slowly improving.

 

On the other hand SMEs, on their part, can also help themselves by improving their levels of transparency with regards to financial information and work to become even more educated and aware of what is required of them to be eligible for funding.

 

What in your opinion will be the future of the SME market? Both regionally speaking and internationally. Will the UAE become a role model for other markets to follow?

 

In developed markets, SMEs are the key drivers of economic growth, employment, and prosperity. A thriving SME sector is a healthy sign that the economy and the wider society is growing sustainably.

 

The UAE has a strong and growing SME market with plenty of mechanisms and institutions in place to support and drive the sector. For instance, according to the recently published UAE report on SMEs, total of 16,688 commercial licenses were issued in 2012 which is a vast improvement from the 11,743 licenses issued in 2009. The majority of these licenses were issued in Dubai where events such as the rebounding property market and the strong performance of the UAE markets in 2013 have had a positive effect on liquidity and the country’s SME sector.

 

How does the bond and indemnity system work for SMEs in cases of international trade transactions?

 

When it comes to international trade, financial guarantees are often required in order to secure new contracts and underpin the financial credibility of businesses’ to meet their contractual obligations. SMEs, like other companies, can use Letters of Credit for international trade, however typically financing organizations are likely to demand high cash margins to compensate for the risk. This is not always helpful given that SMEs are often in need of cash.

 

Therefore GFC is able to offer a variety of services such as Advance Payment Guarantees (APGs) and Performance Bonds (PEBs) that can be used to support contracts and give comfort to the contract principal that the SME can perform.

 

What did Gulf Finance do differently to win the Best SME finance for many years?

 

In addition to the fast turnaround GFC is able to offer clients that approach us for funding, another important success factor is our ability to provide flexible solutions aimed to suit the needs of individual clients. To give an example, GFC provides a specially designed Small Business Loan of up to AED 250,000 for small business that have a three year record of bank statements and trading history. This product is attractive to so called ‘Micro’ firms employing a maximum of 20 people and with turnovers of up to AED 20 million. Typically these are the companies that struggle to obtain finance. Via our small business loan offering we are therefore able to service a historically neglected group of companies within the SME sphere.

 

What are your plans for the next few years?

 

We intend to grow organically within the UAE and build our book by focusing exclusively on financing SMEs. We shall expand our product range to include more short term facilities and support for SMEs who want to engage in international trade. A recent survey by Dubai SME highlighted that over 50% of SMEs in Dubai derive some portion of their revenues from international trade. Approximately 57% of SMEs are engaged in trading activities which is not surprising given that Dubai is a hub for regional trade.

 

In 2013, GFC also established an associate company in Saudi Arabia, called Gulf Installment Company (GIC). Capitalized at SAR 100 million, the company provides finance to SMEs for the purchase of capital equipment on a finance lease basis. Headquartered in Jeddah, the company reached profitability in the second half of 2013 and plans to open branches across the Kingdom in Riyadh and Dammam are underway.

 

Given our association with GIC, we are now also the only SME finance company that can provide funding for UAE companies wishing to expand into Saudi Arabia. Similarly we are the only finance house able to fund Saudi businesses from the Kingdom that wish to execute projects in the UAE. We are hopeful that this unique ability to finance cross border deals between the UAE and Saudi Arabia will generate more business for us going forward.

 

About David Hunt:

 

David Hunt is the CEO of Gulf Finance Corporation. He joined the company as Head of New Markets in 2011 and assumed the role of CEO Saudi Arabia in 2012. In early 2013, Mr. Hunt successfully established Gulf Installments Company in Saudi Arabia. Before Mr. Hunt joined Gulf Finance Corporation, he held various senior and Director-level positions at HSBC Group. Mr. Hunt has 25 years financial services experience and extensive regional knowledge. He holds a degree in Banking and Finance from Loughborough University and is an Associate of the Chartered Institute of Bankers. David Hunt is also a special advisor to Actis, a UK private equity firm.

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