Businesses and Corporations are not exempt from paying debt. Especially in times of economic hardship, businesses fight to maintain their revenues and liquidity. If a business makes a risky decision or is unprepared for the downturns that come with market changes, they can find themselves deep in debt. Just like anyone else, businesses are not exempt from having their assets seized or liquidated by their creditors. A debt restructuring plan may be the best way to cut their losses and utilize this last ditch effort to save the company. Let’s dive into the details.
How debt restructuring works for businesses.
There are a lot of companies large and small that struggle to stay afloat. With the normally large amount of money that is in a business, debt can be crippling and threaten the life of the company. Debt restructuring works the same whether it is done for an individual or for a company. A credit counseling professional or lawyer can take on the debt and negotiate lower interest rates and loan amounts and consolidate it into one monthly payment. The advocate deals with the creditors and takes the stress off of having to pay all these multiple accounts each month with their high interest rates and harassing calls and notices.
Debt restructuring allows the business to restore its liquidity. They can also have their creditors reorganize the financial obligations they are involved in. By doing this it is basically refinancing their loan with their creditors. They can lower the monthly payments and interest rates while extending the length of the loan. Some creditors also accept equity or concessions and offer debt forgiveness in exchange.
Unlike personal debt restructuring, when a business goes through the same process they can often expect to have success quicker. Once the debt is restructured the business will then be able to have a more positive cash flow, keeping the doors opened. And we all know that’s how you make your money, by staying open and running. The business will have to continue ti pay their new debt restructuring loan but once they pay it off they can expect to be just as strong as ever.
On the flip side some businesses may need to restructure debt because they are having trouble collecting their debt from their borrowers. Businesses can be on both the debtor and creditor side.
Advantages to debt restructuring
The biggest advantage for a business to restructure their debt is the instant liquidity. Now that they are not as weighed down from the monthly payments and have a little breathing room, they can focus on rebuilding the business with changes to improve. Restructuring also keeps everyone’s credit maintained so there is no need to worry about your credit score taking a hit.
Disadvantages to debt restructuring
A pretty big disadvantage to debt restructuring is that when venders or investors, or even employees find out about the status of the company, they may lose trust and be tempted to leave. Another thing to be aware of is that if the process is not completed in a timely manner, the business can be sued by their creditors. If this happens the business’ assets can be seized and the court has the ability to liquidate everything.
Debt restructuring can be complicated, especially when a business is involved. It can affect many people and have lasting effects. When it is done carefully and the business is able to then continue to make responsible choices from that point on, it can be an amazing saving grace to a once failing operation.