Is your company on the verge of bankruptcy? If YES, here are 7 smart tips on how to restructure business debts successfully plus the best debt restructuring companies to help you. You may have started your business on a bright note after careful planning and strategy. But despite that, your business can face tough times as a result of unforeseen (or even foreseen) factors beyond your control.
During these times, you have to do either two things: get some credit to keep your business afloat or get of business for good. When running a business, accumulating some debt can be necessary or even inevitable. But if you are not careful, you may end up with too much debt than you can manage, especially if your business doesn’t generate enough income as expected.
Now if things go downhill in a business and the debts exceeds the income it gets, such business may well be heading towards bankruptcy. However, bankruptcy is not the only way to go when a business is in the face of perils, business debt reconstructing is also a very viable option.
According to the SBA (Small Business Administration), approximately 40,000 businesses in the united states alone close down every month due to bankruptcy. But your business doesn’t have to be one of them. Even if your business is facing some financial hardship at the moment, you don’t have to be in jeopardy of losing it. There is a way out of the quandary, and it is known as debt restructuring.
Table of Content
What is Debt Restructuring?
Debt restructuring is a strategy that allows a business facing cash flow problems and financial distress to reduce and renegotiate its debts in order to improve and restore liquidity and rehabilitate so that it can continue its operations (Wikipedia’s definition). It is the process by which the outstanding debt of a distressed company is reorganized in order to straighten out the distressed company’s outstanding obligations to restore its liquidity and keep it in business.
This is done by negotiation between distressed companies and their creditors, such as banks and other financial institutions, by reducing the total amount of debt the company has, and also by decreasing the interest rate it pays while increasing the period of time it has to pay the obligation back. At times, the debts a business has may be forgiven by the creditors in exchange for an equity in the company.
So, with debt restructuring, you can have a solid and proven plan to get out of debt and prevent your creditors from seizing your assets and forcing you out of business.
Benefits of Restructuring your Business Debts
In the United States, Chapter 11 proceedings allow for a company to get protection from creditors in the hopes of renegotiating the terms on the debt agreements and surviving as a going concern. Even if the creditors don’t agree to the terms of a plan that was put forth, the court may determine that it is fair and impose the plan on creditors. Such arrangements, which often are the final opportunity for a distressed company, are preferable to a more complicated and expensive bankruptcy.
In business debt restructuring, a company’s debts are assessed, then the best way to pay creditors while keeping the business functioning is found. Business debt restructuring involves reorganizing overdue accounts so creditors can be paid strategically without having to shut down the company or file for bankruptcy.
Restructuring your business debt will help you manage it better and improve your chances of paying up. If you can find a way to restructure your debt with your creditors by negotiating new payment terms with them, you can avoid filing for bankruptcy or taking other actions that will only cripple your business in the long term.
Business debt restructuring comes with some other benefits which include:
- Consolidate existing debts: If your business is currently paying back multiple loans every month, you’ll spend a lot of time juggling the various repayments, which can be very time-consuming. Restructuring your company’s debt could help reduce the number of monthly repayments you have to keep track of by consolidating these into one payment, making your life simpler and allowing you to get back to running your business.
- It increases cash flow: short term debt can be converted to a manageable long term plan
- Avoid unnecessary legal fees: Debts can be settled without the need for attorneys.
Even though debt restructuring may not be good for everyone, but for some, it is the best option. If more than 30% of your payables are over 90 days old, you are taking chances with the future of your company unless you have a realistic plan to satisfy your creditors. If you do not have a well thought out plan, your business can sink into more debt and your assets can be ceased by your creditor, thus killing your business.
You can restructure your business debts on your own if you think you can pay off your past due debts over the next couple of months. This will take considerable time and energy, though. But if you will need more than a year to pay back your debts; then you should definitely consider seeking professional help.
Whether you will be handling the debt restructuring process yourself or you will be hiring the services of a debt restructuring company, you need to follow these general steps:
7 Smart Tips on How to Restructure Business Debt Successfully
1. Determine which debts you to restructure
Not all your debts will need to be restructured. Figure out which one should be restructured and the ones you don’t need to restructure. Where necessary, you can consolidate multiple debts into a single debt. This is your first step towards a successful debt restructuring process. Restructure the wrong debts, and you will still remain stuck in a quicksand of debt.
2. Determine your monthly budget
Problem usually starts when the monthly income your business generates cannot cover your business debts. So, you will need to establish an amount that your business can afford to pay toward these debts on a monthly basis. Once you have figured out the amount, divide it into the amount of debt you are planning to restructure.
If you can pay up to 8 percent or more of your monthly income, then you can handle the restructuring process yourself. However, you will need to seek professional help if the percentage of your monthly income that you can dedicate to debt repayment falls below 8 percent.
3. Prove your company’s hardship
Write a hardship letter that explains your company’s financial plight. Provide concrete details such as figures. And be ready to provide proof if the creditor requests for that. (Most creditors will request to see your profit and loss statements before accepting your renegotiation offer).
Also, you must try to convince your creditors that it is in their best interest to consider restructuring your debt and explain what your plans for repayment are. Creditors will be more likely to restructure your debt if you have some type of security to offer.
4. Adhere strictly to the repayment plan
If your creditors grant your debt restructuring request, then you must adhere strictly to the repayment plan. Remember that you will sign an agreement, and failure to meet the terms of the agreement will spoil your reputation and that of your business. And that may prompt your creditor to take harsh actions against you.
In order to make your debt repayment easier, try to cut costs where necessary. Consider changing some of your equipment or rent the ones you need rather than buy them, if doing so will decrease your operating costs. Restructuring your operating costs can help you generate enough funds each month to pay back your loans.
Here are some of the best debt restructuring companies in the United States of America to help you get started.
3 Business Debt Restructuring Companies in USA
a. Business capital
According to their website, Business Capital’s commercial debt restructuring solutions provide most of the relief without the drawbacks associated with a Chapter 11 filing. Business Capital has developed an effective system for the rapid resolution of all categories of business indebtedness. This they have been able to do by their open and non-adversarial approach to creditors. This enables their clients to maintain vendor continuity and retain customers.
Business Capital works with companies that are challenged, in transition or distressed due to transactions, market conditions, or growth toward the next stage of development. They work directly with your lenders, suppliers and creditors so you can avoid personal and commercial bankruptcy. Business Capital will allow you to put your focus back where it belongs – on your business.
They develop an understanding of your company’s financial situation, your wants and needs. They then conduct an analysis of your company and its creditors and then customize a solution specific to each creditor situation. Next, they will discuss possible settlements with their client before they approach the creditors. If you are simply looking for additional time to pay off the debt in full, they can help you out with that as well.
After this analysis, they will present you with possible options and solutions to your issue. Then you can judge if their proposals and ideas are the best for you. Benefits provided by Business Capital’s Commercial Debt Restructuring program:
- Avoid Business Bankruptcy
- Satisfy creditors based on what your business can afford
- Reduce debt and stretch it out over time into fixed, affordable monthly payments
- Spend less time dealing with creditors, collection agencies and attorneys
- Spend more time creating revenue and optimizing your business
- Keep your doors open and retain management control
- Avoid unnecessary legal fees
- Balance your budget and manage cash flow
- Preserve vendor relations and keep vital supply lines open
- Rebuild your credit and credibility
b. JP Capital Management
The JP Capital Management team brings a truly unique set of capabilities to the table some of which include;
- Private Equity: the ability to make decisions now, the liquidity to act
- Operational Expertise: the ability to assess companies of all types, and to roll our sleeves up and improve them
- Strategic Integration: JPCM has been actively integrating and improving businesses for 20 years.
c. American Finasco
American Finasco Inc. is fast becoming one of the top debt restructuring companies in the country, with a lengthy client list that spans across numerous US markets, a surge in sales, and recent offer to take its winning program to national television — providing an alternative to business bankruptcy in an educational, news magazine format.
- A Guide to Great Business ideas for the Future 2025 – 2030 - September 3, 2021
- How Long Do Cordless Drill Batteries Last in 2021? - August 2, 2021
- How Does the Use of Cargo Containers Benefit the Economy? - August 2, 2021