Click herThe Debt Panel: Abu Dhabi small business owner owes Dh1.35m and is struggling with Dh70,000 monthly repayments January 10, 2017
I am going through a challenging situation with my technology business. I have many loans and credit cards and am paying almost Dh70,000 every month in repayments. My operation is small with only five staff and our revenue is Dh250,000 per month. However, I am struggling to keep up with the repayments as well as pay staff and my rent. Every few months there is a shortfall of Dh30,000 to Dh40,000 and I use credit cards to top up the difference. All my profit is going to the repayments and I end up using credit cards to pay the staff and any bills. I then only pay off the minimum on the credit cards. In total I owe Dh1.35 million: Dh600,000 to the three banks in loans, Dh350,000 on 13 credit cards and Dh400,000 to friends.
The situation is making me feel tired and my sales are affected, since I am the only marketing person for my company. Some of the issues that have contributed to this are my accounting skills, bad expansions and customers that have run away and not paid me. I took a loan of Dh300,000 to set up the business and already had Dh200,000 of credit card debt then. The business did well for the first nine months, so I took on another loan to expand but we never grew after that. So I had the same level of revenue but my expenses had gone up. Since then I have taken top-up loans or more credit cards, which brings me to today. Now I have a mentor who is helping me put together a business plan to come out of this situation. I would also like a helping hand from the banks to consolidate my debts so that I can have a new beginning. What do you suggest? AV, Abu Dhabi
Debt panellist 1: Rasheda Khatun Khan, a wealth and wellness planner
First, congratulations on getting a mentor. It is as imperative to work on ensuring the problem doesn’t escalate any further by creating future strategies, as well as working out how to get out of the problem at hand – the debt that’s already accumulated.
Consolidating the debt to an affordable longer-term monthly repayment is the only real solution, together with ensuring the future plan is in place too. Make sure you are fully aware of all your numbers. Work out the monthly amount you can realistically contractually commit to and have a back-up plan for the off-peak months when income is lower. Build an emergency fund for both your business and your personal plan.
Recently, the founders of two debt management companies have approached The National offering their services to see if they can help those facing tough debt situations. They include:
• Lotus Loans & Overdues Rescheduling Services (lotusadvisoryuae.com)
Lotus is a Dubai Economic Department-licensed firm specialising in debt counselling, restructuring and consolidation of liabilities for individuals and SMEs. They will approach the banks on your behalf in a bit to consolidate your debts.
• Credit Expert (creditexpertuae.com)
They offer a one-on-one consultation to analyse your situation, obtaining credit reports and explaining the contents of the reports to you, advising you on how to improve your current status, negotiating better interest rates or extended terms on your cards and loans and finally, if necessary, arranging the best deals on debt consolidation loans.
With any service of this kind there will be fees involved, so find out how much their services will be and how exactly they can help you before you proceed.
Starting a business can be very exciting as well as fearful. More than 90 per cent of businesses fail within the first five years because of lack of planning or an initial over exposed start. Making hasty financial decisions without a repayment strategy is a high-risk way of starting a business. Furthermore, expanding while the company has so much debt is another common mistake. The spiral of debt becomes very hard to break and can cost you everything, your business, your home and your family. Take calculated risks and be sure you know what you are committing to.
Debt panellist 2: Ambareen Musa, founder and chief executive of Souqalmal.com
Unfortunately, when it comes to debt consolidation, the eligibility criteria for self-employed individuals in the UAE is a bit vague, so the only way ahead is to approach your primary bank and other banks with whom you have a long-standing banking relationship. Speak to them about consolidating what you owe them along with your most expensive loans and credit cards.
Banks can also be approached individually to discuss the option of a payment break for a few months as a temporary solution, or debt restructuring and extension of loan tenure as a long-term solution.
Compare the interest rates on all your debts and start prioritising repayment towards those that charge the highest interest rate. You will most certainly have to start with your credit cards and then all unsecured high-interest loans. We would strongly advise you against using credit cards any further, as the accruing interest will quickly drain your hard-earned revenue.
On the personal front, do you own property and other assets here in the UAE or back home? Liquidating these can help you get rid of a big chunk of your outstanding debt.
The Debt Panel brings together four financial experts: Jamal Alvi, the chief credit officer at Abu Dhabi Islamic Bank; Ambareen Musa, the founder and chief executive of the comparison website Souqalmal.com; Rasheda Khatun Khan, a wealth and wellness planner and founder of Design Your Life; and Keren Bobker, The National’s On Your Side columnist and an independent financial adviser with Holborn Assets in Dubai. Together they answer queries in a weekly online column to help readers better tackle their debts. If you have a question for the panel, write to firstname.lastname@example.org.
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