Debt Restructuring

person trying to do debt reconstructing

Most small businesses have outstanding debt, such as bank loans, lines of credit, vendor financing, and merchant cash advances. When unforeseen events hit, like a pandemic or a recession, business owners may struggle to repay their business debt. One way to avoid defaulting is debt restructuring.

If your small business is at risk of defaulting on business debt or a merchant cash advance (MCA), contact the debt relief specialists at Defaulting on business debt may cause bankruptcy, so you must act quickly. Complete the convenient intake form now to get started. Our debt relief specialists are available 24/7. 

What is Business Debt Restructuring?

If your business is struggling to repay a loan or other business debt, there are three ways to make payments more manageable and improve cash flow:

  • Refinance – obtain a new loan that pays off the balance of an existing loan
  • Consolidate – combine multiple debts into a single loan with one monthly payment, and, hopefully, a lower interest rate
  • Restructure – work out more favorable repayment terms with your creditors

Restructuring your business debt may involve asking the lender to extend the term or temporarily reduce the interest rate. 

Reasons to Restructure Business Debt

Generally, there are two types of business debt restructuring – general debt restructuring and troubled (distressed) debt restructuring.

Businesses typically consider general debt restructuring to prepare the company for an event, such as a merger, transfer of ownership to family members, or an employee buyout. In this scenario, the creditor may agree to extend the term or lower the interest rate to allow the business to regroup and repay the debt later. 

By contrast, businesses that are struggling financially may be at risk of defaulting on their debts, so they will need to restructure their troubled debt more quickly. In this process, the creditor may incur losses since this type of restructuring usually involves settling the debt for less than the full amount owed.  

How To Do Business Debt Restructuring

The process for debt restructuring depends on the situation. Creditors may be more agreeable to a general business restructure, however, a troubled debt restructure necessitates the assistance of an experienced debt relief specialist. There are several steps you can take to get started:

  • Identify the problem – All your debts may not need to be restructured, so determine which debts are preventing your business from growing. Is there a term loan with a high-interest rate or a merchant cash advance with onerous repayment terms? 
  • Calculate how much you can pay – Determine how much your company can pay toward your business debts each month. For restructuring to be feasible, you should be able to pay 8 percent or more. 
  • Notify creditors – Prepare a hardship letter that outlines why your business needs to restructure the debt arrangement. The letter should include data and financial statements to support your request. 

While it is in a creditor’s best interest to restructure your business debt, negotiating with a creditor can be tricky. By working with a capable debt relief specialist, you can renegotiate the terms of your business debt, avoid a default, and achieve your long-term goals.  

Restructuring a Merchant Cash Advance

MCAs are unlike other forms of business funding. First, a merchant cash advance is not a loan, but rather the purchase and sale of future receivables. Also, MCAs are based on a factor rate, not an interest rate. The business owner’s credit rating, the amount of the advance, and the business’s sales history determine the factor rate. 

Finally, merchant cash advance agreements often include provisions like a confession of judgment and a personal guarantee. These provisions allow the MCA provider to seize both the business’s assets and the owner’s personal assets in the event of default, which may force the business into a liquidation bankruptcy.

It is possible to restructure a merchant advance, however, as long as the MCA agreement includes a reconciliation clause. This provision requires the funder to restructure the payment plan if the business experiences a downturn. To be eligible, the owner must first notify the MCA provider of a receivables shortfall and be able to prove that the business will return to profitability. Notably, a funder that refuses to negotiate in good faith may be in breach of contract. 

Contact Today

If your business is experiencing a receivables shortfall, we can assist with reconciling your merchant cash advance. Our experienced debt relief specialists will help you compile the financial data to back up your request and negotiate with the funder on your behalf. We work with businesses around the country and have a demonstrated track record of success. Contact us today to learn how we can help.