UAE SMEs: Cost and debt levels remain biggest worries

Dubai: The cost of doing business and managing debt remain the two major concerns UAE-based small and mid-sized enterprises (SMEs) are facing, in the latest 'SME Confidence Index' survey brought out by RAKBank.

Starting this year, the vast majority of businesses must also co-opt what they are paying as corporate tax.

”Over two-thirds of UAE SMEs report higher operating costs, with interest rates still acting as a pressure point,” said Dhiraj Kunwar, RAKBank’s Managing Director – Commercial, SME Banking, Retail Branches, ABF and Real Estate Finance.

“Corporate tax is perceived as a moderate business impact.”

This has dampened confidence among SME owners on their short-term prospects despite the prospect of more interest rate cuts coming later this year.

Interestingly, despite the concerns on higher costs, SMEs have remained active in the local lending market. UAE banks, big and medium-sized, have all reported growth in their lending to individuals and to corporate clients.

“Domestic credit remains strong, with over 60% of SMEs reporting increased revenue and positive expectations,” said Kunwar. “However, mid-sized firms are starting to approach lending with greater caution.

“Smaller SMEs (with under Dh30 million in annual revenue) continue to show resilience, with consumer and retail services rebounding, while professional services face cost-related challenges. Medium and large SMEs faced the same.”

The worry about how they manage costs is also reflected in the extremely slow pace of hiring that UAE SMEs are opting for. Even those businesses that have seen higher revenues and profit gains are taking the same go-slow approach on new staff, waiting to see how they handle their corporate tax obligations. (Those businesses following the January to end December 2024 financial year will have to file returns by September 2025.)

“Labor costs and a focus on expense management suggest SMEs are cautious about hiring,” said Kunwar. “Cost control appears to be a priority across industries.

“However, most of the SME clients continues to hold a bullish outlook on the prospect.

Through recent years, RAKBank has expanded its reach within the local SME space, and currently has an over Dh10 billion exposure to these businesses. “This is expected to rise this year as well,” said Kunwar.

“SME customers generally seek working capital that is renewed annually, while loans typically have a tenor of 36- to 48 months, with an average cap of around Dh1.2 million.”