Bridge loan facility agreements in the UAE

In brief

• Only a lender authorised by the Central Bank, the DFSA or the FSRA may carry on lending as a business in the UAE.
• A bridge facility protects the lender only if security is registered quickly in the right registry for each asset.
• UAE courts refuse compound interest and limit the total interest a lender can recover on a defaulted loan.
• Firms newly caught by the wider Central Bank licensing perimeter have until 16 September 2026 to regularise their position.

Who may provide a bridge loan in the UAE

The Central Bank has operated under a new statute since 16 September 2025. Federal Decree-Law No. 6 of 2025 repealed and replaced Federal Decree-Law No. 14 of 2018, and it widened the range of activities that require a licence. Article 62 catches any person who carries on, offers, issues or facilitates a licensed financial activity, whatever technology or medium that person uses. Lending money by way of business falls inside that perimeter. Our corporate lawyers in Dubai check the lender's licensing position before anyone drafts a term sheet.

The penalties changed as well. A person who carries on or promotes a licensed financial activity without authorisation faces a minimum administrative fine of AED 1 million. The maximum administrative fine rose to AED 1 billion, and criminal fines for unlicensed activity run from AED 50,000 to AED 500 million. Entities that now fall inside the perimeter have one year from 16 September 2025 to obtain the licences they need.

In the DIFC and the ADGM the analysis runs separately. Providing Credit is a regulated activity in both centres. A firm that lends in or from the DIFC needs a Category 2 licence from the DFSA. A firm that lends in or from the ADGM needs a Financial Services Permission from the FSRA. Arranging credit for someone else also requires permission in both centres.

A single loan between two trading companies differs from a lending business. The Central Bank has published no general exemption that draws the line. Shareholder loans, intra-group funding and one-off vendor credit sit closer to the safe end. A lender who lends repeatedly, advertises for borrowers and charges arrangement fees looks much more like a regulated business. Family offices and investment vehicles that fund several bridge deals a year should take advice on their own position before the next drawdown.

How interest, fees and default interest are treated

The Commercial Transactions Law allows a creditor to charge interest on a commercial loan at the rate stated in the contract. Where the contract states no rate, Article 72 applies the market rate at the time of the transaction, capped at 9 per cent until repayment. The earlier cap was 12 per cent, so older precedents and older templates can mislead.

Two further limits matter in a defaulted bridge deal. The law does not allow a creditor to claim compound interest, and the Central Bank prohibits licensed institutions from charging interest on accumulated interest. The Federal Supreme Court has also held that accrued interest may not push the total debt above the principal advanced. On a twelve-month facility that runs three years into enforcement, that limit matters.

Fee structures need the same care. UAE courts look at what a payment does rather than what the parties call it. An arrangement fee, a commitment fee and an exit fee that together replicate a higher coupon may be treated as interest and reduced. Price the facility through a stated interest rate. Charge separate fees only for services the lender performs. Islamic banks may not charge interest in any form, so a Sharia-compliant bridge uses a murabaha or a similar structure instead.

Security that can be taken and how it is perfected

Security over movable assets sits under Federal Law No. 4 of 2020 and Cabinet Resolution No. 29 of 2021. A security right binds third parties once the secured party registers it in the Emirates Movable Collateral Registry, takes possession, or obtains control. Control applies to credit accounts held with a financial institution. The lender either holds the account itself or asks the account bank to sign a control agreement. Priority follows the order of registration, so a lender that delays filing can lose to a later creditor who files first.

Real estate is stricter. Under Dubai Law No. 14 of 2008, the mortgagee must be a bank or finance company licensed and registered with the Central Bank to provide property finance in the UAE. A mortgage takes effect only when the Dubai Land Department registers it, and any agreement to the contrary is void. A private credit fund cannot hold a Dubai mortgage directly, so it appoints a licensed bank as security agent or takes different collateral.

Shares in a mainland LLC are pledged before a notary and recorded with the competent authority in the relevant emirate. Free zones run their own share registers and their own pledge procedures. In the DIFC, the Law of Security 2024 replaced the 2005 law. A secured party perfects by filing a financing statement with the DIFC Registrar of Security.

Post-dated cheques and promissory notes still appear in UAE bridge deals as payment support. A cheque returned by the drawee bank for insufficient funds counts as an executory instrument. The holder may apply straight to the execution judge without filing a substantive claim first. That route is faster than litigation, though it does not replace registered security over the borrower's assets. We set out the practical limits in our guide to what happens if a company cheque bounces. Similar points apply to bank guarantees used as credit support.

Corporate authority and the financial assistance restriction

Lenders often discover too late that the person who signed a guarantee had no authority to give it. Under the Commercial Companies Law, a manager of an LLC may not mortgage the company's assets or guarantee the debts of a third party. Two things lift that restriction: consent from all partners, or an express provision in the memorandum of association. A lender taking a corporate guarantee from a group company should therefore see the shareholder resolution. It should also check that the signatory holds a power of attorney covering the specific act.

Article 222 of the same law prohibits financial assistance. A company and its subsidiaries may not help anyone subscribe for or buy the company's shares, bonds or sukuk. The restriction extends to loans, gifts, guarantees and the provision of security. UAE law offers no whitewash procedure, so shareholder approval does not cure a breach. Bridge loans that fund the purchase of a target and are then secured on the target's own assets need restructuring before completion.

Federal Decree-Law No. 20 of 2025 amended the Commercial Companies Law with effect from 15 October 2025. It introduced share classes, drag-along and tag-along rights, and re-domiciliation between free zones and the mainland. It did not introduce a financial assistance whitewash. Directors who ignore Article 222 remain exposed, and we cover that exposure in our note on director liability for corporate debt.

Deductibility of interest under UAE corporate tax

Interest on a bridge facility is deductible, within limits. Ministerial Decision No. 126 of 2023 caps deductible net interest expenditure at the higher of 30 per cent of tax-adjusted EBITDA or AED 12 million. A borrower whose net interest expenditure stays below AED 12 million in a tax period escapes the cap entirely. That is the case for most single-asset bridge deals.

Three points affect deal pricing. Interest on debt whose terms were agreed before 9 December 2022 sits outside the general rule, so a refinancing can lose that treatment. Banks, insurers and natural persons carrying on business fall outside the rule. Interest paid to a related party attracts a separate test, and the borrower has to show a valid commercial reason for the arrangement. The definition of interest in the corporate tax law is wider than the accounting definition, so arrangement fees and discount elements can enter the calculation.

The UAE applies no withholding tax on interest paid to a foreign lender. Cross-border bridge lending into the UAE therefore avoids the gross-up negotiations common in other markets.

What happens if the take-out financing does not arrive

Most bridge facilities assume a defined exit, usually a bank refinancing, an equity round or an asset sale. When that exit slips, the facility agreement should already say what happens. Set the events of default around measurable facts. Useful triggers include failure to pay, failure to reach financial close by a stated date, and loss of the borrower's licence. Broad material adverse change wording gives a lender little practical help in a UAE court, because the lender has to prove the change.

Insolvency changes the picture again. The Financial Restructuring and Bankruptcy Law took effect on 1 May 2024. The court may unwind transactions carried out in the six months before the debtor stopped paying its debts. That period extends to two years where the counterparty is a related party. Granting security for a debt that already exists is one of the listed transactions, unless the parties can show a commercial justification. A lender who advances money and registers the security on the same day stands in a far stronger position. Taking security later, to cover an exposure that already exists, invites a challenge.

Enforcement of the debt itself runs through the execution judge, and our guide to enforcing a UAE court judgment sets out the stages. Secured creditors may now enforce against collateral during bankruptcy proceedings through the Bankruptcy Court.

Governing law and forum for a UAE bridge facility

Parties often choose English law for the facility agreement and the DIFC or ADGM courts as the forum. That choice works for the contractual terms. It does not extend to the security documents. A Dubai property mortgage, a mainland LLC share pledge and a movables registration all follow UAE law and local procedure, whatever the facility agreement says.

Onshore courts also apply mandatory UAE rules to a foreign-law loan enforced here, including the rules on interest set out above. Most parties therefore split the documents. English or DIFC law governs the facility agreement, UAE law governs each security document, and a licensed security agent holds whatever the borrower's assets require.

What to check before signing a bridge loan facility agreement in the UAE

• Confirm the lender's licence, or confirm why the transaction sits outside the licensing perimeter.
• Fix the interest rate expressly in the agreement, and keep the structure simple.
• Identify each asset, the registry that governs it, and who is permitted to hold security over it.
• Register every security interest on the day the lender advances the money.
• Obtain shareholder resolutions and specific powers of attorney for guarantees and asset security.
• Test whether the structure touches the financial assistance prohibition before completion.

The Central Bank has yet to publish implementing regulations under the 2025 law, and those regulations should define which technology-enabled activities require a licence. Lenders and borrowers should review their position again after 16 September 2026, when the transitional period closes. Legal advice may be required to assess how the licensing, security and tax rules apply to your particular structure.

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