Business Debt Restructuring, Are the Trade-Offs Worth It?
Business debt restructuring can be considered as a strategy for companies to avoid default on an existing debt. It may also be performed so that the borrowing party can avail themselves of a lower interest rate. Company debt restructuring can actually alter the debt’s terms of the agreement so that both parties, the lender and the borrower, benefit. But as good as corporate debt restructuring sounds, it has its own advantages and disadvantages.
The primary advantages of debt restructuring involve matters of control and overall creditworthiness.
- Allows a business to gain control of its finances.With business debt restructuring, debts carrying a high interest rate can be transferred to another lender with a lower rate and potentially a prolonged payment term so that the monthly obligation is reduced.
- Improves credit score.Businesses have credit scores too. If restructuring is performed properly, it can actually improve those scores after a period of time. Restructuring your existing debt ensures easier debt payments. When debts are paid regularly and on time, good credit scores result.
- Engages the help of third party.With the intervention of third party financial institutions processing large enterprise or small business debt restructuring, everything flows more smoothly and the business owner is relieved of much of the stress of debt management.
The primary drawbacks to debt restructuring involve the availability of new lines of credit and overall business image.
- Places a hold on new credit applications.While your business debt restructuring is underway, the first reaction of your creditors is to hold all your applications for new credit to ensure that you will be paying your existing obligations regularly after the whole restructuring process is enforced.
- It won’t look good to the publicIf your business chooses to restructure its debts and the information leaks out to your customers, they may assume that you are having problems with your finances or that you are close to bankruptcy. They could start looking for a more stable company with which to deal.
Before proceeding with the process of business debt restructuring, evaluate all the implications. If after thoughtful assessment, company debt restructuring seems to be the only feasible solution to your immediate problems, then go ahead with it. Just remember to practice discretion along the way. Restructuring is debt help but it could also have a degree of negative impact on your business.