Individuals develop debt over the years due to things like credit card balances and student loans, but this is not simply a problem for individual people. Businesses also face the struggles of growing debt and this can cause a major strain on the business, bit or small. In fact, one of the most common reasons for a business failing is the inability to pay back the debt accrued through start-up loans.
Thankfully, there are options for businesses, or more specifically, for business owners, to help manage this debt so that it doesn’t cause them to close shop. Debt restructuring is the name of this process and it allows for the management of debt through shuffling resources, and even some personal accounts can use these strategies.
Simple forms of debt restructuring are used by individuals as well as businesses. Refinancing is one of these and involves working with the bank or loaning agency to rewrite the terms of the debt-causing deal.
For example, mortgages are common instances of refinancing so that either the individual or the business can obtain a lower interest rate on payments, thus reducing the overall debt. Businesses use this strategy to minimize repayments of loans and mortgages, but can also be restructured through a workout, which is typically mandated by a court or bailed out by another agency.
Another common form of debt restructuring is known as debt-for-equity swap. This is exclusively used for businesses and larger companies trying to minimize or get out of debt. In this process, the company will pay for or cancel out debt by giving their creditors equity in the company rather than simple money. Larger companies have a much easier time of going about this because they have more to offer, but growing companies can offer advantages as well that are appealing to creditors.
While it may sound easy on paper, debt restructuring is a tedious process that involves working with, and sometimes fighting against, crediting agencies to lower the debt of a person or company. When going through such a process, it is immensely helpful to have someone knowledgeable about the process on your side to give you and your business the best chance you can have of getting out of debt and keeping the business stronger than ever.
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