Generating funds is a concern that all business owners have when starting a business as it is the core of a business's success or downfall. Not being able to make the initial investment, is actually one of the main reasons why many business owners shy away from starting a business. But in today’s day and age, this shouldn’t be the case. If you have a great business idea or have an existing business which you want to see growth but aren't sure about how to get the funds to make it possible, crowdfunding can be your solution. To help us get a clear picture of crowdfunding in the UAE, Craig Moore, Founder & CEO of Beehive - one of the leading crowdfunding companies in the UAE, gave us some insights about how crowdfunding works in the UAE and the services Beehive offers to support SME’s and people who want to start a business in the UAE. Let’s take a look at what he had to say.
Crowdfunding in the UAE
Crowdfunding is a process that gives new or small business owners the opportunity to generate the necessary funds to grow their business. It provides an alternative route to help fund a project or venture by raising small amounts of money from a large number of people, typically through an online platform. There are four ways in which this can be done; Donation, Rewards, Lending and Equity. The options currently used for crowdfunding in the UAE are primarily Lending and Equity.
Although crowdfunding in the UAE is still relatively new to the region, it is attracting a lot of interest from SMEs and Investors who wish to explore alternative finance and investment solutions. The two primary models of crowdfunding in the UAE that an SME can access - debt crowdfunding, also known as peer to peer finance, or equity crowdfunding.
Both peer to peer finance and equity crowdfunding use an online platform to connect businesses seeking finance with potential investors. Each model has advantages and disadvantages, but both can offer a valuable alternative route to finance depending on the company objectives for growth.
Peer-to-Peer financing is one form of crowdfunding service which Beehive provides. Our peer to peer lending platform provides economic returns to the crowd funder through returns on the principal investment paid through monthly repayments. In simple terms, peer-to-peer financing refers to individuals (investors) providing finance to businesses (customers) without the use of a conventional intermediary such as a bank.
Peer to peer finance is based upon investors providing small amounts of capital to a business. In return, they receive monthly repayments plus profit. If your business is established and has a strong credit history, it may be preferable to consider using peer to peer finance. This form of crowdfunding enables you to maintain full ownership of your company by borrowing money as opposed to selling shares in your company.
As a business owner, a key decision when considering peer to peer finance is understanding whether you can afford the repayments associated with the financial terms. If your business is in a strong position and can afford to make regular repayments, then peer to peer finance is a great option to grow your business.
If not, it may be that your finance requirements are better suited to equity crowdfunding. This involves selling part of your business to multiple investors who become shareholders who will share the profit and any loss. The benefit of equity crowdfunding is that experienced investors may bring valuable advice and ideas to the business. The disadvantage is that you will end up owning a smaller share of your business and, in some cases, may have to consult your investors before making certain management decisions. This type of finance is often suited to start-ups as investors share the business risk and provide important capital that can otherwise be hard to find, particularly from conventional institutions.
benefits of crowdfunding in the UAE through beehive
Crowdfunding helps to create a strong community between businesses and investors. Crowdfunding companies in the UAE offer alternative routes of finance to businesses and investors. Although these options vary in their offerings, they support the growth of SMEs and the overall economy.
SMEs are the target businesses for Beehive. We as an SME work to support other local SMEs in growing and expanding their business through fast, affordable finance. Our online platform connects SMEs with investors to help them build brand recognition and support local businesses so it becomes more personal and streamlines the process of accessing finance faster. In return, investors receive a fixed rate return on their investment paid back through monthly instalments as per the loan term agreement. It’s an opportunity for investors to support local businesses in their growth and expansion plans which ultimately provides economic growth as well as provides them with additional asset classes.
Some of the top industry sectors we have dealt with include contracting, digital, engineering, entertainment & design, financial services, food & beverage, health & sport, human resources, IT services and management consultancy to name a few.
Crowdfunding work for investors?
For our investors, once they pass our due diligence process regulated by the DFSA they can begin investing from as little as AED100 and can expect to see start receiving their monthly repayments on the following month which includes their interest rate of return.
We also have a Secondary Market which allows investors the opportunity to access liquidity by transferring outstanding finance parts to other investors on Beehive. It enables investors to diversify their investment portfolio by accessing previously closed investment opportunities. It is also a great way for new investors on Beehive to quickly build a comprehensive and diversified portfolio.
A tip for investors in the UAE’s crowdfunding platforms - the best way to maximize your return on invested money on the platform, is to reinvest the monthly instalments into new requests.
Beehive is the first peer to peer lending platform in the UAE to be regulated by the DFSA. They connect businesses with investors who can support SME’s growth plans. With over 7k registered investors, Beehive is the fastest way for businesses to connect with investors to access a low-cost loan through innovative crowdfunding technology and eliminate the cost and complexity of conventional finance options.
We hope you this article helped you understand the process of crowdfunding in the UAE. Are there any other topics like this you would like us to cover? Let us know in the comment section below. For more interesting property and business related investment updates stay tuned to the best property blog in the UAE!