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Abu Dhabi, UAEWednesday 26 September 2018

The Debt Panel: 'We've borrowed over Dh1m to keep our business on track'

A Dubai couple have used loans and credit cards to fund their struggling fabrication company

Ilustration by Alvaro Sanmarti
Ilustration by Alvaro Sanmarti

My husband and brother started a business in Dubai four years ago, which has been facing a number of problems for the last two years. To finance the business, which offers fabrication services, we sold all of our assets back in India, took out several loans and ran up debts on credit cards. In total we have borrowed over Dh1 million for the company, where I also work. We owe a lot to the suppliers and workers as well as several banks. We are not even able to finance our children’s education. Suppliers, workers and banks are calling every day and have lodged cases against us for non-payment. My husband even stayed in jail for almost a week. My husband and brother are really hard-working people; they worked hard to start this business and are now doing the same to keep it going. Right now, we are facing a lot of problems mainly because of lack of funds. The debts are all in my husband’s name and we started missing payments four months ago. The debts are:

Loans: (outstanding / monthly payment)

Bank 1: Dh135,000/ Dh7,381

Bank 2: Dh137,000/ Dh8,733

Bank 3: Dh150,000/ Dh7,875

Bank 4: Dh110,000/ Dh4,655

To suppliers: Dh400,000

Credit cards:

Bank 1: Dh75,000

Bank 2: Dh42,000

Bank 3: Dh50,000

Bank 4: Dh30,000

Bank 5: Dh39,000

Total debt: Dh1,168,000

We are owed Dh500,000 by a client. We have been waiting for 11 months to receive this payment. If we could recruit to get to a personnel strength of 30 employees, we could recover very fast. At the end of the month we are expecting a project worth Dh1m. We spend about Dh9,000 a month on our own monthly expenses and have two children to support. Can you help us resolve this? JM, Dubai

Debt panellist 1: Shaker Zainal, head of retail banking at CBI bank

You haven’t mentioned the amount of revenue your business currently makes. Your monthly instalment payments are around Dh40,000. In addition, you need Dh9,000 to cover your living expenses, so I am assuming that your company nets you less than Dh50,000 a month, which is why you are missing regular payments.

As you have loans and cards spread across many banks where most payments are in default, the first thing to do is to speak to all of them, assure them that a solution is being sought and request some time until you find a solution. Every bank has its own process of recovery and you should anticipate that at some stage, they might initiate legal proceedings, which would cause you more difficulties.

It seems most of the loans were for working capital needs. As the business has been running for four years, you have the option of reaching out to banks, who provide working capital loans to SMEs. You could then request that all your debts are consolidated at one bank (with or without collaterals) and they may provide you with working capital financing to expand/enhance your business and help get you out of the debt spiral. Also have your business reviewed by a chartered accountant, who provides proper budgeting and insights on improving business performance, as it looks like your budgeting could possibly be improved.

The good news is that you have Dh500,000 owed to you and the banks are likely to enquire what arrangements are in place for the payback and whether this receivable can be partially or fully given as a collateral for your new borrowings. You should try and obtain this amount in two to three instalments so that you can pay back your suppliers to continue your business and clear your overdue payments. Once you find a bank that can help consolidate your debts (via a buyout), things will become easier to control and manage.

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Debt panellist 2: Ambareen Musa, founder and chief executive of Souqalmal.com

Qualifying for a business loan is not possible for a number of small businesses, given the stringent eligibility criteria set out by banks. Therefore, many business owners like you turn towards personal finance. However, your exposure to debt, with the multiple loans and high-interest credit cards, has now left you in a financially vulnerable situation.

While you are expecting the state of your business to improve with the upcoming project, you must deal with your creditors right away to avoid facing legal action and late payment penalties. Explain your predicament to your lenders and negotiate with them to revise the repayment structure on your loans and credit cards. Ask them to extend your repayment tenure and possibly lower your interest rates.

Since you seem to have exhausted all means of credit, you must look inwards. First, try and figure out how you can trim business costs – is there unused equipment or space that you can lease out or workforce that you can shrink? Next, deal with your suppliers and reach out to them with payment options that will make them clear their dues faster. You could offer them some sort of discount or the option to make deferred payments. If nothing else works, consider resorting to legal recourse to recover the Dh500,000 payment that is overdue by almost a year.

Now that you've run up more debt than you can manage to repay and don't have any personal assets to fall back on, your only hope is a turnaround in the prospects of your business. But if the situation does not improve in the next few months, you may have to seriously think about selling the business and liquidating its assets to cut your losses.

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Debt panellist 3: Keren Bobker, an independent financial adviser with Holborn Assets

While I only have limited information about how the business functions and nothing regarding cash flow, this situation is clearly untenable. You are not only seriously behind with debt repayments but if employees are also not being paid this also has a knock-on effect on them.

I note you are owed Dh500,000 by a client but has any legal action been taken to recover this debt? Did you agree payment terms or request part payment upfront to defray any costs? I recommend seeking expert legal advice to recover this money, or at least part of it. Recovering some of the money owed would significantly improve the situation, allow for staff to be paid and some debt repayments.

While I am reluctant to suggest paying out any more money than is essential, good professional advice can be helpful in getting a business back on track. I assume there have been ongoing cash flow issues but understanding how to manage these, and how to manage a business properly is a skill; understanding the technicalities of a business is not the same as understanding how to run and manage one successfully.

It appears you are pinning hopes on one project but it is not good business practice to be almost wholly reliable on one customer. Also, if employees have filed cases with the Ministry of Human Resources and Emiratisation then the company is unlikely to be permitted to apply for more visas to expand the staff until cases are resolved.

If the business is not working, drastic measures may be required. Are there are assets that can be sold to reduce the debts, or at least get repayments paid to date? If payments are not made, and as they appear to be in one person’s name rather than in the company name, then your husband is going to be held liable by the creditors. Making some of the outstanding payments will help here or the banks have the right to take further action.

You say you work for the company but are you able to get work elsewhere so you can earn some money and help out your husband? I assume you are not taking an income if employees are not being paid, so having a steady income from elsewhere may assist.

The Debt Panel is a weekly column to help readers tackle their debts more effectively. If you have a question for the panel, write to pf@thenational.ae

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