Debt becomes a problem when payments are hard, covenants break, or new funding is unavailable. Early action keeps options open.
Warning signs:
- Tight cash vs loan payments
- Less than 8 weeks of cash
- Repeated covenant breaches
- Overdues with lenders/suppliers
- Falling margins and rising returns
Refinancing vs restructuring:
- Refinancing: replace old loans; better rates, longer terms, consolidation; needs stable performance
- Restructuring: adjust current terms; extend tenor, temporary rate relief, reset covenants; used under stress
Restructuring steps:
- Stabilize: 13-week cash plan, prioritize payments, cut non-essentials, protect key relationships
- Diagnose: find root causes (pricing, returns, marketing efficiency, supply chain)
- Propose: terms that match cash flow; phased amortization; realistic covenants; recovery timeline
- Negotiate: present scenarios; set milestones; use advisors if needed
- Implement: sign documents; set reporting and triggers
Working with lenders:
- Communicate early and transparently
- Share monthly performance packs
- Propose data-backed solutions
- Consider Islamic alternatives if helpful
UAE legal points:
- Keep corporate documents current
- Register security properly
- Note free zone vs mainland differences
- Use standstill agreements if needed
- Watch cross-default clauses
Rebuild credit:
- Meet revised schedules consistently
- Send detailed monthly reports
- Rebuild cash buffers
- Fix underlying issues
- Diversify lenders and extend maturities
Prevent future issues:
- Set leverage caps and minimum coverage
- Quarterly stress tests
- Monitor returns, CAC, inventory aging, cash trends
- Maintain undrawn committed lines
- Disciplined capex process
Success factors:
- Act early
- Be transparent
- Use realistic plans backed by data
- Commit to operational fixes
- Get expert help for complex cases
Most lenders prefer cooperative restructuring to defaults. Early, honest engagement buys time to fix operations and return to growth.