We went to the experts at Restructuring Advisory Group to explain further what exactly business debt is. Business debt refinancing is the process by which a business entity refinances its debt obligations by replacing or reorganizing its extant debts. Business debt refinancing may also entail the issue of equity to pay back a proportion of debt.
A business entity refinances its debt with the fund that has been raised through the issue or creation of other borrowing. The original debt is converted into a new debt instrument. A business entity can consolidate its existing debt and get better interest rates by repaying the existing debt obligations with the new debt instrument.
Several banks provide business debt refinancing programs to business owners to help them with raising funds that will enable them to cover their current debts and begin a new debt instrument with new terms.
Some of the reasons to refinance business debt are listed below:
- Enhanced savings with better interest rates: As a business entity consolidates its present debt and switch to a better interest rate, it gets an interest rate that is lower than the existing rate. Higher interest rates can indebt a business entity longer that it is required to be, while a reduced interest rate can enable the businesses to save more amount of money in the longer period of time. One of the things Restructuring Advisory Group advises is to have business entities can reinvest their savings to repay their principal debt much faster.
- Improve cash flow by converting short-term loan into a long-term debt: Business entities can refinance their short-term loans into long-term debts to improve their present cash flow situations. Business debt refinancing help business entities to have access to higher working capital on a monthly basis and it reduces risk from things such as payroll and slow account receivables. Business entities can protect themselves from needless collections lawsuits filed by short-term creditors by paying their debts in the right time.
- Enhance credit score: Business entities can improve their credit score by consolidating their existing short-term debt. Business entities witness a surge in their credit score by up to 30% in just a few months after they have refinanced their business debts as they have reduced their credit utilization ratio. The credit utilization ratio is the amount that a business concern owes on its credit card with respect to the total amount of available credit.
- More viable option: Business debt refinancing is a more viable option for business concerns those have a proven track record in not so distant past, however, they have amassed a hefty volume of debt of late. Restructuring Advisory Group has been providing these services for years and is regarded as the leader in detailed and customized solutions.
- Ease in operations and budget planning: Business debt refinancing helps a business concern to ease its operations and plan its budget well in advance as debt consolidation makes it easier to monitor the payment of only one debt, instead of several.