Starting a business is exciting—but also expensive. Many entrepreneurs in the UAE ask the same question at the beginning: “Should I fund my startup with my own money (equity) or take a loan?”
The truth is, there’s no one-size-fits-all answer. Both owner’s equity and loans have advantages and trade-offs. The key is knowing how to balance them to set your startup up for growth without unnecessary financial stress.
What is Owner’s Equity?
Owner’s equity is the money you (and any co-founders) invest into the business. It can come in the form of:
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Personal savings
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Contributions from family or friends
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Investment from partners
In simple terms, it’s your “skin in the game.” Equity strengthens your business balance sheet because it shows commitment and reduces dependence on external debt.
Pros of Owner’s Equity:
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No repayment pressure or interest costs.
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Builds credibility with banks and investors.
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Gives you full control over decisions.
Cons:
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You bear all the financial risk.
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Ties up your personal savings.
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Growth may be slower if equity is limited.
What is a Loan?
A loan is borrowed money from a bank, financial institution, or sometimes even friends/family, that you must repay over time with interest. In the UAE, SMEs often access:
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Bank loans or working capital facilities
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Supplier credit (delayed payment terms)
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Private financing (sometimes more flexible, but higher risk)
Pros of Loans:
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Access larger funds without giving up ownership.
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Accelerates growth by financing equipment, inventory, or operations.
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Interest may be tax deductible for corporate tax purposes.
Cons:
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Requires regular repayments, even if cash flow is tight.
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Banks often ask for collateral or strong guarantees.
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Excessive debt can create financial strain.
How Startups Should Balance Equity and Loans
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Start with Equity First
In the early stage, equity is often safer because it gives breathing room. Investors and banks also take you more seriously if you’ve committed your own capital. -
Use Loans Strategically
Once your business shows stable cash flow, loans can help you expand faster. Use debt for assets or inventory that directly generate income—not for covering operating losses. -
Match Financing with Purpose
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Long-term assets (e.g., equipment, property) → Long-term loans.
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Short-term needs (e.g., inventory, receivables) → Short-term working capital facilities.
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Growth and resilience → Mix of equity and debt.
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Don’t Overextend
Keep your Debt-to-Equity ratio healthy. Too much loan makes banks hesitant to lend further, while too little debt may slow down growth.
Practical Example
We recently advised a UAE startup manufacturer. The founder had invested AED 500,000 of personal savings (owner’s equity), which built credibility. However, as orders grew, he needed more working capital to buy raw materials. Instead of injecting more personal funds, we helped him secure a bank loan linked to receivables. This balanced structure gave him:
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Skin in the game (equity)
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Liquidity to grow (loan)
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Protection of personal savings
Final Thoughts
For startups, both owner’s equity and loans are powerful tools—but they must be managed wisely. Equity builds trust and stability, while loans add fuel for growth. The smartest founders strike the right balance, ensuring they don’t run out of cash or drown in debt.
At Merzaai Advisory & Accounting, we guide startups in the UAE on structuring equity and loans, managing working capital, and building financial resilience from day one.
If you’re launching a business and unsure how to fund it, contact us—we’ll help you find the right mix for your startup’s success.
