While one half of entrepreneurs are faced with a problem of accessing loans, the other is faced with trying to find an easy way of preventing them from drowning in debt. The Kenyan market is awash with so much easy money now offered via all manner of channels. With so much on offer it is hard to resist taking some up. The risk is usually borrowing beyond your capacity and especially if you are in an economy where businesses can’t perform. Whether borrowed for personal or business use, you soon fall into problems with late payments and defaults. You get listed and can’t get more loans. Then the phone calls and threats start, your sanity and social standing is threatened. You start getting stressed because you are working so hard in getting deals but can’t finance them. How to dig yourself out of this hole is our theme today
It would be easy to advise that you choose what debt to take and what not to take. But maybe it’s useless now because you are already deep in debt. Then here is where you get to make decisions on which debt to repay first and which to delay. So many of the micro finance and online debt isn’t strictly operating on the banking law. They are very liberal on their rates and especially penalties. They are quickly hitting you with 10% weekly or monthly penalties. Easily, the money you are owe grows to much more than you borrowed. Find ways to dispense with shylocks, individuals, and micro finances first then remains with the banks. At least they are regulated and can be a little patient before they decide to come down heavy on you.
2. Negotiate Settlements
Your debtors are sure to be on your back. Don’t fear them or run away. Just arrange to meet. You are now on the advantage. It is you who has their money now. Use that leverage to negotiate. There are many things you can win here; get them to scrap the penalties, get them to postpone instalments, get them to restructure the loan to terms suitable to your repayment. Get them to buy off other smaller loans elsewhere that are harassing you. You can make small repayments of what you have even if not the full instalment just to appease them and show them tuko pamoja
3. Debt Conversion
Depending on the kind of business you run, it might be possible to convert some of it into stock. Often big companies are able to open up ownership to their lenders. Most lenders newly converted into owners will want to stay only until they get their money back. You will lose your power of running the company to the new influence who will be primarily concerned with recouping their money. They may chop and dismember your company, take it in a direction you may not like, sell it off further etc. But that might be the price you pay. This also always opens opportunity to integrate with your suppliers when you find yourself so deep in the mud.
You might find some creditors that are more amenable to the idea of boosting further your position, so your business can thrive again. Some banks are willing to offer a top up or a sort of re financing. Take it up and use it to pay off the more pressing debt. The trick here is always to maintain a good credit history when you can so that the lender is able to accommodate you when you run into headwinds.
5. Take Advantage of Moratoria
Among the debt you have the creditors are also facing pressure and trying to re-coup whatever they can to survive. They will offer you discounts, waivers and other sweeteners to pay up. Take advantage of such. You have seen it especially with public institutions; HELB, Counties etc. taking advantage of such moratoria helps you cut out the heavy penalties and even some of the principal. If you have good relationship with your creditors they might even give you a heads up on how to enjoy that
6. Debt Consolidation
If having a sick credit position is stressful, then having so many different creditors is hell on earth. Imagine number of calls and threats you have to deal with in a week? Imagine the number of people hunting you down at any time? Find ways to consolidate your debt and deal with one lender. That way you have less stress on relationship management. There are sharks that love to buy your debt for even higher interests watch out so that you don’t sell cheap loans to high interests that burden you even more
7. Collateral Liquidation
Some of the loans you have is secured by some asset. Some of those assets are owned by you as a person, the business or even close family or guarantors. A time comes, and you find that it is best to release such assets to relieve the pressure you face with your loans. If you can make such decision, the next important one is to ensure that you take control of the liquidation of the security. Otherwise, if you leave this to the lender they might short sale you in that cartel infested market.
8. Asset Liquidation
There are a few assets you bought for yourself, family or even the business out of the fruit of your labour. Some of those are very important in sustaining the business and the family quality of life. Some of them are not so important. In a situation where your business faces mortal danger, you might want to consider what asset can be liquidated to fund the survival of the business. Do you sell off your personal car?, is it goats or cows that will have to go or is it that quarter plot you bought in Kamulu? Is it even the company car or stock that will have to go? Some stock is even released cheaply to fund a recovery. Best decision has always to be arrived based on the most productive channel. You want to sell off and be able to afford right away some breathing space with the loans if not off set them entirely
10. File for Bankruptcy
When all the other options fail, it’s time to run to the protection of the law. You will however need to have thought of this from the time you set up your company. What is the nature of your liability protection. If sole proprietor or partnership the creditors will still reach into your personal property. If your company is limited, then after your company runs dry the creditors will be restraint from touching anything personal. If the court is merciful, then it might grant you bankruptcy and keep all your creditors away. Not really a good thing to celebrate but other people have found the peace to recover and start again this way.
11. Shift Budget to Debt Repayment
Now you find yourself in a hole maybe it’s best to stop digging. Ditch the strategy and plan that prescribes expansion and consumption. Go minimalist and concentrate on paying the loan. This is the time you cut costs in all areas; reduce unnecessary labour, move to smaller facility etc. even on personal level, cut costs to the minimum, move to cheaper houses, ditch the car, etc. accept the change of lifestyle for now. Even trees shed leaves when it gets too hot and wait for a rainy day.
12. Stay Out of Debt
Please concentrate on staying sober. Stay away from debt for the time being. It’s tempting really because debt always presents itself as an easy avenue for growth. But do all what you must do to stay out of it for now. Grow organically and maybe in future once you stabilize your credit profile, you can explore debt again.
13. Seek Expert Help
Guess what, if your own advice got you into debt trouble to begin with, it might not be the best option to get you out of it. Talk to the experts in finance, law and related disciplines. Don’t just jump instinctively into dealing with debt alone. You might compound things by jumping from the frying pan to the fire. You might want to get counselling from professional debt counsellors. Professionalize other areas of your business too. An accountant and auditor will always be able to detect trouble miles away.
NB: The law guarantees you one free credit report per year. Walk into any CRB and get yours. It should be able to give you an indication of where you stand credit-wise.
Other ideas of dealing with debt trouble?