The Complete Guide To Islamic Loans:
What is an Islamic loan?
An Islamic loan, or a halal loan as it is also known, is a means of borrowing, lending or banking money in a way which is respectful to the principles of Sharia law and guided by Islamic economics. The fundamental principle of Islamic finance, is the avoidance of any financial activities which could be deemed either harmful (haram) or risky for the borrower. Features of Islamic loans include:
- A ban on riba and usury
- Profit and loss sharing
- Islamic loan providers are strictly forbidden from charging any rates of interest on the amount borrowed.
What is an Islamic Merchant Cash Advance?
A merchant cash advance, also referred to as a business cash advance, is a completely interest free means of financing your business. Having only been around for a few years, it’s considered a truly innovative and flexible alternative to mainstream business funding.
Using our merchant cash advance, your business can access anywhere from £1,000 to £500,000 in unsecured capital within as little as 24 hours, and there are absolutely no fixed term repayment periods.
You simply pay back the sharia compliant loan using a small, pre-agreed percentage of your future customer card sales. As repayments aren’t fixed, the amount you pay back is perfectly in sync with your business’ performance. So, if sales happen to be a little slow one day, you don’t need to worry; the amount you repay will also be suitably smaller.
Is your business eligible for Islamic finance?
It is a common misconception that you have to be Muslim to be eligible to apply for Islamic finance. Whilst you do not need to be Muslim, your business is required to undertake Sharia compliant ventures. Qualifying for Islamic finance can be far easier than traditional business finance. Our simple criteria for an interest free Islamic loan include:
- Your business is registered in the UK
- You have been actively trading for at least 6 months
- Your business uses a card terminal to process customer card transactions
- Your business does not fall under the following prohibited industries: gambling, drugs, weapons, chemical manufacture, pornography, banking and money transfer services
Considering an Islamic loan for your business? Why choose us?
According to the Office for National Statistics, in 2018 it was reported that there are now more than 3 million Muslims currently living in the UK. Many of which are diligent and ambitious business owners in search of sharia compliant finance to grow their businesses into thriving enterprises. At SME Loans we endeavour to give all of our clients access to the fast and affordable funding they truly deserve. Understand what our service offers by seeing how we can help:
- We recognise the importance of offering our growing Muslim client base a funding option that perfectly aligns with their religious and cultural beliefs.
- Our Islamic merchant cash advance can provide you with a fantastic interest free alternative to mainstream funding.
- Commercial directors are well equipped to help you through the process and answer any sharia compliance and lending money questions you might have.
What is Murabaha in Islamic finance?
A Murabaha agreement is a form of an Islamic loan contract, in which an asset is sold for cost plus profit. It is considered both halal and Sharia law finance compliant as it adheres to the central teachings of Islamic Law.
With a Murabaha transaction, the lender is not permitted to charge interest on the loan. Instead, the lender simply purchases an asset of the business and then sells the asset back to the business owner at a later date, along with a single additional charge.
Further still, if the client defaults on repayment, the loan provider isn't allowed to charge any additional late fees.
This is also, exactly how our Islamic merchant cash advance works. Technically not a loan and free from an interest rate, an advance works by purchasing your predicted future card receivables. You then repay the total amount borrowed, plus a single all-inclusive fee, via your card terminal. Each day or week, a small percentage of your total customer card transactions is automatically deducted and given back to the lender as repayment.
There are no set-up fees, late charges or hidden costs. Ever.
Do Muslims pay interest on Islamic loans?
No. All Islamic loan providers, including Islamic financial institutions and banks, are prohibited from charging any interest based on the amount borrowed on loans, bonds or bank deposits. This is due to the Muslim belief that money has no intrinsic value and that the exchange of money should not be for profit.
- No interest is charged on our Islamic merchant cash advance. The total loan amount is repaid with an all-inclusive fixed fee, making it an acceptable form of finance for businesses under Islamic law.
- The fee is always agreed upfront with the lender so you know how much you have to repay from the outset.
- Borrowing risk is kept to a minimum and clarity ensures there will be no costly surprises along the way.
What is Sharia compliant finance?
As mentioned, Sharia compliant finance involves financial financial activity that is compliant with Sharia (Islamic law). The main difference between islamic loans vs. conventional loans is the prohibition of interest. Unlike Sharia compliant finance providers, conventional banks and lending facilities earn money by charging fees and monthly interest charges for borrowers using their loans and services.
- Sharia law finance and loans ban contracts with excessive risk or uncertainty (gharar)
- The absence of economic activities that are considered forbidden (haram)
- Restrictions on any form of gambling and speculation (maisir)
How can I borrow money the Halal way?
With our Islamic finance interest free merchant cash advance, you can borrow between £1,000 and £500,000 for your business. The money can be used to productively assist your business ventures and you’ll know from the onset exactly what you are required to pay throughout the borrowing period, eliminating any risk attached. Benefit from:
- An alternative finance provider you can trust
- Quick access to the finance you need
- No interest charges on what you borrow
How do I apply for Islamic finance?
Our paperless application process is designed with the busiest of business owners in mind. At SME Loans you can apply for Sharia finance between £1,000 - £500,000 simply by submitting a quick online application form.
Provide our commercial directors with basic details to verify your business. Including the amount you want to borrow, your average monthly card sales, the name of your business and the number of months or years trading.
You will then be required to provide contact information so that we can quickly get in touch. Be ready with your full name, position in the business, email address and phone number.
Carefully read through our terms and conditions and click ‘get my quote’. We will soon be in contact with updates on the status of your application.
Please be aware that after making an application online, you may be asked to provide some basic supporting documentation to evidence the information provided. This documentation typically includes:
- 4 months’ worth of card statements
- 3 months’ worth of business bank statements
There’s no need for any calls, meetings or excessive paperwork and you can apply quite simply from the comfort of your own home. Alternatively, if you have any queries or you’d like to discuss our Islamic loan options a little further, please don’t hesitate to get in touch on 020 3475 9213.
Our dedicated support team is on hand to help and guide you through the entire process, from start to finish.
Islamic banking and finance: Is it regulated?
The UK has adapted pre-existing legislation to accommodate the structures commonly used in Islamic finance. Rules governing Islamic finance products and services are set out in the Finance Act 2005, amended by the Finance Act 2007 as regulated by the Financial Conduct Authority.
What are the benefits of Islamic finance?
The UK is the leading Western centre for Islamic finance and institutions offering Islamic financial services are nearly double than the number of those in America. A popular finance option that continues to expand rapidly, Sharia compliant finance is based on ethical principles for borrowing. As well as this:
- Encourages financial inclusion. Under conventional banking systems and structures Muslims are required to abstain. The growth of the Islamic finance industry increases the overall UK and makes for a global and modern economy.
- Promotes ethical finance practices. Because Sharia law does not support usury, speculation or gambling, potentially harmful industries are excluded.
- No risk through interest charges. Murabaha transactions ban lenders from charging interest on their loans. This reduces the chances of borrowers getting into debt.
Frequently Asked Questions
If we haven’t answered all of your questions about Islamic finance, then take a look at some of the most frequently asked questions below.
What is Islamic finance?
Islamic finance is a form of business funding which adheres to the practices of Islamic law. Some of these practices include:
- Not charging interest on borrowed money.
- Must not benefit from haram practices such as gambling or alcohol.
- No speculation on high risk investments.
You do not have to practice Islam to apply for Islamic financing, meaning that it is available to everyone.
How can I get Islamic finance?
To get Islamic finance you can apply online via an online application. The application will require you to provide business details, personal details, contact information and how much money you wish to borrow. Once the form has been submitted, one of our account managers will be in touch to discuss the loan options available to you and to answer any questions you may have.
Why choose SME Loans for Islamic finance?
At SME Loans, we have lots of experience working with clients who opt for Islamic financing for their businesses. So, we understand how important it is to comply with the financial practices of Islam. That’s why we work with a panel of regulated lenders who offer financial options designed to comply with the principles of sharia law. Our online application is secure and easy to fill out, plus there are no fees charged to apply for a quote.
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