How to Restructure Business Debt?

1. How to Restructure Business Debt? Are you feeling troubled in reaching your financial goals because of a high number of debts on your business? Well, you don’t need to worry now because we have a solution for you. Being drenched with debt can haunt you day and night. Either your business might shut down or it would go in loss. Thoughts like these keep whirling in your brain for a long time. However, let us assure you that there is a solution to every problem. And every successful business-men has gone through this stage. Let’s dig into some helpful strategies to help you restructure business debt.

2. What Factors to Consider Before you Restructure your Debt? If you want to know how to “restructure business debt”, then it is must to understand what debts need to be restructured. Make sure that you find out the lacking in your business. Also, identify which debt needs immediate restructuring. Once you are done with the decision-making process, then move on to restructuring the debt. Prepare an official document and renegotiate business debt with the creditor. However, you should keep in mind that restructuring debt can have consequences. And there are various factors you must consider before designing a payment plan. When is Restructuring Debt Needed? Any company or business never wishes to go bankrupt as extreme losses can occur. So, to prevent bankruptcy, restructuring of debt is done to reduce the pressure of paying loans to the creditor. Many business-men reduce debt payment by following a low-interest rate. Or they can prioritize the amount of loan that urgently needs to be cleared. How to Restructure Debt? To make business debts more manageable, you need to make a plan and have a proper strategy. There are three main strategies, suggested by experts at Nav, that renowned business companies can follow; Refinancing Consolidation Restructuring plan If the company cannot pay the loan on the deadline, then creditors always give an option to restructure their debt. Let’s look into each step in detail. Debt Refinancing vs Consolidation They are the most common strategies followed by multiple business companies of large scale or small scale. Often both of these strategies are considered similar but there is a very fine line between the two. Debt consolidation involves converting several debt payments into a single debt payment. While one major benefit of debt consolidation is reducing your monthly debt payments, another is a lower interest rate. On the other hand, refinancing debt means to optimize existing loans into more favorable terms (pay lower interest). These strategies are beneficial as they can help you overcome the high paying debts with smart work. Let’s understand debt refinancing and consolidation with a quick example;

3. Example of Consolidation Emma has two different credit cards. The first one has a balance of $2500 with an interest rate of 20%, whereas the second one has $2000 with an interest rate of 18.5%. She owes a $100 loan to be given up till 4th and $150 to be paid up till 10th. If Emma pays off the loan in the coming months, she would be in debt for many months. Hence, she decides to consolidate her debt into one single payment and pay it all at once. Example of Refinancing Now, Emma bought a house with a 20-year mortgage having a fixed interest rate of 5%. After some months, she realizes that the interest rate of the mortgage has significantly dropped. And she can take out a loan at 5% interest. As a result, she refinances her house’s loan and uses a new lone to pay it off. This is debt refinancing. Emma has replaced one debt with another but with a lower interest. What to Choose: Debt Refinancing or Consolidation? If you owe multiple smaller debts to different lenders, then debt consolidation is best for converting your various debts into one single loan. However, if you owe only a single debt that can extend to years, like a home loan or property loan, then you can go for debt refinancing. This will make your debt more manageable and help you to pay off your existing loans in no time. Restructuring Debt Another quick method to smartly handle your debts is to restructure your loans. You can ask the creditor to renegotiate debt or to reorganize the terms and conditions of the payment. Most of the creditors are very understanding and they appreciate the interest you show in honestly paying the loans. However, you can ask them to reduce the interest rate of the business loan. Or you can also ask the lender to increase the payment time duration so that you can have more time to manage the loan. For example, you can ask them to extend the payment to five months. Tips for Restructuring Debt Smartly: RenegotiateBusiness Debt plan with your creditor and handle it carefully. Equity Swap: bankruptcy provides little value to the creditors, then they would ask for an equity swap. This means that they would be a part of your business and become a shareholder Change of Terms: Remember that restructuring debt does not mean to move the debt to 0% but it is a change of terms with the creditor to help yourenegotiate business debt. Generate Revenues: Improving the business revenues can ensure the payment of loans on the desired deadline. Prevent Bankruptcy: Due to the pandemic, many business people filed for bankruptcy as they had zero revenue to pay the loans. So, prevent bankruptcy at all costs by managing your debts smartly

4. Decide: Study your loans carefully and decide which debt to restructure Conclusion A 2019 survey conducted by the Federal Reserve banks reports that approximately 70% of small business were under outstanding debt. Moreover, large multinationals, nowadays, are experiencing a major decline in their profits due to the pandemic. However, companies had a strategy and a plan survived the pandemic successfully. All in all, the only solution to paying off the loans is to restructure business debts. There are many strategies that you can follow. But it would help if you always remember that business debts are an ultimate reality and you will have to face them smartly. OriginalSource: https://peterethan60.medium.com/how-to-restructure-business-debt-7b58132eefac