I was sacked from a company in April 2015, where I worked as an operations manager earning Dh6,500. I decided to start a new company trading in marine spare parts to take revenge and show my old employer my courage. To raise the initial capital I took a loan in my home country of India for approximately Dh82,000, with an interest rate of 14 per cent for a tenure of three years. I still owe Dh80,000, which I need to pay over the next 18 months. Everything went fine in the beginning but the repayments on my loan as well as the non payment of credit card bills in the UAE pulled me into more debt. Plus, whenever I had no money in the UAE for daily expenditure, I used my Indian credit cards to purchase groceries – so on them I owe a further Dh8,000. I use my pension from serving in India's armed forces to pay for the credit card debts. Here in the UAE I have five credit cards and I have also used the cards of two friends. In total, on those seven cards, I owe Dh152,300. The interest alone on all these cards comes to a huge amount and it's taking more than the profit of my business every month. Plus I have to pay my house rent of Dh1,500 a month and my car payment of Dh1,717. Those who had stood by me offering support then turned their back on me when the finance matter entered. I have already downsized to a studio flat with the lowest rent in an industrial area to cut down my expenses. I no longer have any staff in my company and had to leave my office due to non payment to the real estate owner. I've ended up with no money to run my business and no bank will offer me a loan. The problem was because companies that I had supplied goods to kept their payments pending. In total I'm owed Dh125,000 so I cannot stop the business but I also cannot do any more business as I have no money to fund it. What do you advise? LL, Dubai
Debt panellist 1: Ambareen Musa, founder and chief executive of Souqalmal.com
The decision to start a business should be well-thought out and carefully planned. However, in this case it is clear that you solely relied on debt and without much financial planning.
So now you have Dh88,000 worth of loan and credit card debt in India, and Dh152,300 worth of credit card debt in the UAE. Since, your monthly pension in India is helping you repay the debts back home, your primary focus should be to pay off the heavy credit card debt you’ve accumulated here.
Unfortunately in your case, the business has been up and running for barely two years, and some start-ups do usually take longer to become established and start seeing steady revenues. However, the financial foundation of your business is all debt, and whatever money you make in the process is going toward debt repayments.
Being self-employed in the UAE makes it nearly impossible for you to apply for debt consolidation of any sort, and your best bet would be to convince the card providers to convert the outstanding balance into a fixed-interest fixed-tenure loan.
From what you’ve described here, your business doesn’t seem sustainable anymore. On top of that you have living expenses to think about in the UAE. Have you asked yourself the big question — is it time to call it quits? You have run out of financial resources to keep your business running, so maybe you should consider winding the business up and taking the legal route to recover your pending payments. Is there any inventory or assets locked up in the business that you could liquidate? Whatever you’re able to recover from the business can go towards repaying your credit card debts. And you should then consider looking for a job to help support yourself financially, at least until the time your debts have been cleared.
Debt panellist 2: Rasheda Khatun Khan, a wealth and wellness planner
Starting your own business certainly has its merits. Running it successfully requires planning and understanding cash flow. Having a product that has demand is only the start – it’s a great start, but still only the start.
Understanding cash flow is one of the key elements to building and maintaining a successful business. Be careful of over credit exposure. This is one of the most common mistakes that new business owners make; starting a business with too much debt and at a rate the business cannot afford puts the company in a very bad starting position. Paying 14 per cent for your loan means your company profits need to be that just to break even, and this is not even taking into account the amount of the loan capital. If starting a business means you have no money to pay for your basic lifestyle costs, then you should seriously consider not starting a business at that time. You should have savings you can rely on for income initially until your business can afford to pay you. Cash flow can make or break a business. Have a clear and detailed plan before making any business decisions.
In your current situation, focus on finding an investor to come into your business. Create an attractive investment opportunity. Make sure you have clarity in your numbers. If you know you have a good product and business model and you just need cash flow, then work out how much you need to put into your business to make it a success together with an attractive gain for an investor. If the numbers are right, there is no reason why a savvy investor would not want a piece of the pie.
On other debts, look out for debt consolidation companies in India. Consolidating your credit cards right now will release pressure in your personal cash flow. Can you turn to family members for support at this time? What other resources do you have to earn other income. Take some time to brainstorm ideas of how you can make money. Focus on the resources you have right now, not the ones you don’t.
The Debt Panel brings together four financial experts: Philip King, the head of retail banking in the UAE 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 pf@thenational.ae.
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