Debt restructuring can be a way out for businesses struggling financially. The option is not limited to large companies but can also be used by small businesses that want to reorganize their financial liabilities. Read this post to know five smart tips that can help you with the debt restructuring process.
Businesses struggling with a dire financial crisis are often left with limited options. They can either file for bankruptcy or restructure their business debt. In most cases, debt restructuring proves to be a more cost-effective option in the longer run. It can allow you to default on your current debt liabilities and take advantage of reduced interest rates and longer repayment tenure.
Contrary to popular beliefs, debt restructuring is not just for larger multinational businesses. Even SMBs can benefit from it at times of need. But how beneficial and useful the restructuring process can be will depend on how thoroughly and carefully it is planned. If you believe that debt restructuring can benefit your company, here are 5 smart tips that can help-
1.Understand Why You Need Debt Restructuring
If you are unable to pay your business debts, restructuring can be a way out. Some of the top benefits of debt restructuring are as follows-
- Avoid bankruptcy
- Increased tenure to repay debt, preferably at a lower interest rate
- Focus more on generating revenue and less on how to deal with creditors
- Maintain existing vendor relations
- Protect business reputation
But based on the financial crisis, your business is suffering from, filing for bankruptcy might be a better option over debt restructuring. The first step is to ensure that restructuring is indeed what is right for your company.
2.Know the Exact Source of the Problem
The first step to successfully restructure business debt is to figure out the exact source of problems that are not allowing your company to generate more revenue. It could be low sales, undercapitalization, lack of skilled talent, competition, or even high overheads.
Pinpointing the problem is crucial for debt restructuring to work as it can help mitigate the problems impacting the revenue of your organization due to which you are unable to fulfil your debt liabilities.
3.Be Honest About Your Company Finances
While discussing details with your creditors, it is necessary to be as honest and open about your business finances as possible. More often than not, creditors ask for some type of agreement or security to increase the chances of you repaying the restructured debt obligations.
If you are unable to provide this security, it is always better to accept the same so that your creditor might recommend some other restructuring method. Failing to repay restructured debt could have severe legal consequences.
4.Know the Basics of CDR
Most countries also have detailed guidelines on how debt restructuring should be handled. For instance, RBI has introduced the CDR (Corporate Debt Restructure) framework in India. Banks and other financial institutions rely on this framework every time a commercial entity wants its debt obligations to be restructured.
A business wanting to restructure its debt should try to first understand the basics of CDR in India. What is the CDR structure, steps followed by banks/financial institutions, legal rights of the business, etc. are some of the most important things you should know.
5.Consider Professional Debt Restructuring Services
Not every business has a legal department. Even the ones that do don’t necessarily have debt restructuring experts. So, no matter if you have a legal team or not, it is always better to rely on the expertise of a professional business restructuring service provider.
Only professionals with extensive restructuring experience would be able to effectively present your case in front of your creditors after thoroughly understanding your crisis and negotiate a way out that brings in maximum relief to you and your business operations.
Is Debt Restructuring the Best Option for You?
While debt restructuring is a preferred option among organizations struggling financially, it is only an expert that could confirm whether or not it is the right option for you as well. Even if you’ve decided that restructuring is what you need, you should rely on professionals to handle the process on behalf of your organization.
Their knowledge and expertise in the industry will provide you with the best opportunity to recover from the financial crisis, improve business operations, and continue growing.