What is Business Debt Refinancing? 5 Reasons to Refinance Business Debt

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:

 

  1. 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.

 

  1. 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.

 

  1. 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.

 

  1. 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.

 

  1. 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.
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How Can You Avoid Bankruptcy With Commercial Debt Restructuring?

debtIf you are already in heavy debt and are not finding any ways to get out of the obligations, call the commercial debt restructuring experts. Good news is, there is still hope for you and your company and you do not have to take it to the court of law or declare bankruptcy.  If you haven’t heard of this before, debt restructuring is the process used by many companies to deal with outstanding debt obligations. In this method the terms of the debt agreements are altered and some debts are dissolved. This gives you advantage over declaration of bankruptcy. You will be able to have a better hold of your financial situation and will be able to repay all your loans in a convenient manner.

How will restructuring help you?

There are many companies and businesses these days that are opting for commercial debt restructuring to be able to avoid default on huge debts they have accumulated. It also gives them the advantage of low interest rates. In this process a company issues callable bonds that allow it to readily restructure future bonds. If you are restructuring, the existing debt is called and then replaced with a new one with an extended payable period or lower interest rates. Thus, it will become easier for you to repay the loans that have been accumulated.

Debt restructuring will not just help your company to get some time and convenience to repay existing loans, but will also help you to find new sources to improve the existing financial problem of the company. You will be able to get ample time to improve your finances and help your company grow. Thus, it is a better plan to adopt than declaring bankruptcy as it will preserve the confidence of the affiliates and shareholders of the company.  The reputation of the company will also remain intact.

When calling experts…

If you have already decided to call experts debt restructuring, there are certain important things that you need to remember. Always call expert who wants fees in a contingency basis. This will ensure that you only have to pay the professional if your loans are restructured successfully. You should check reviews and recommendations of people and businesses that have earlier opted for such a service. They will be able to help you with their practical experiences.

Remember, there is a wide range of commercial debt restructuring and financial options to choose. So, stop worrying about the financial future of your business. There should be a way out there!

Biggest growth trends of 2017: Debt restructuring and bankruptcy- Restructuring Advisory Group

In case of financial troubles, the first tendency is either to file for bankruptcy or indulge in some debt restructuring. Given how frequent market fluctuations have become, companies have to consider their options with a lot of care. This is the reason for the US “restructuring industry to have issued a word of caution to businesses. Be it law firms, advisories, investment banks, private equity firms or hedge fund setups, all of them have been told to exercise caution when charting out a debt restricting plan for businesses.

Given how choppy the markets have been in the recent times, the experts in this line of work suggest that the restructuring industry had been through a lean patch before it began to make a difference for the government and the industries sector. The positive curve in this trend started in 2015, and by 2016, debt restructuring in the US made a jump of 26 percent. The sharp rise was a first since 2010. The number was disclosed by the American Bankruptcy Institute.

Market analysts and industry watchers opined that 2016 was the “turnaround year” for the debt restructuring industry in the United States. Alix Partner, one of the big names in the advisories category quoted that 2016 “American Bankruptcy Institute.  Taking that into account, Alix Partners hopes that 2017 will see a definite hike for the restructuring domain.

The experts in the restructuring industry are placing their bets on businesses that, to save face from succumbing to debts, will try to reenergize their businesses and will reach out to restructuring firms to chart out a suitable plan of action. This, so that they can settle their debts inside or outside the bankruptcy court, taking a piece of the pie from equity holders and creditors of course!

According to a survey, it was revealed that a majority of respondents – 49 percent – believe that the US restructuring industry is going to see immense growth this year.

Discussing the likely pockets of distress in 2017, analysts reckon that the companies in the oil and energy sector should be the first ones to seek restructuring help. Especially considering how the lower oil prices have caused a dent in the profits of so many businesses in the sector. Second and third rankings on the list are going to be reserved for the retail and health sector respectively. According to Alix Partners, the retail industry in particular shows immense potential for the restructuring specialists.

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Terms Associated with Corporate Debt Restructuring

Corporate debt restructuring is the process by which a company that is having trouble paying off its debts comes to agreements with its creditors that allow it to reorganize its outstanding obligations. This is generally done by reducing the amounts paid, lessening the burden of debt or increasing the time that the company has to pay off the loan. There are plenty of terms that are used pretty freely in this process. Here is a look at what some of them mean.

Reorganization

This is the name given to the process that helps to get a firm that is having financial issues or has filed for bankruptcy back on its feet. Assets and liabilities are restated and deals are made with creditors in order to allow the company to make repayments on its debts. The whole point is to allow a company to continue operating instead of filing for bankruptcy by making special arrangements and restructuring so that it doesn’t repeat past mistakes.

Creditor

This is an institution or a person (usually the former) who allows another institution or person to borrow money that will be repaid at an agreed upon time in the future, thereby extending credit to that institution or person. A business that has provided some sort of product and/or service to another company and hasn’t been paid yet is also considered a creditor. This is based on the contention that although the service has already been rendered, the client is obligated to pay for it.

Bankruptcy

Most companies turn to corporate debt restructuring in order to avoid this. When a person or business is unable to pay debts that they are legally obligated to, they need to undergo the legal proceeding known as bankruptcy. The whole process starts when the debtor files a petition, or sometimes when the petition is filed on behalf of the creditors. The debtors assets are then evaluated and measured and these assets are then used to pay off whatever portion of the debt that they can.

Callable Bond

This is a type of bond that the issuer can redeem before the bond reaches maturity. If the interest rates are now lower than what they were when the bond was first issued, the company will need to refinance the debt at a lower interest rate. Therefore, the company calls the bonds that are current and then reissues them at lower interest rates.

C.H. Brown is the Founder of Restructuring Advisory Group and is an expert in all facets of chapter 11 reorganizations and the restructuring of real estate debt. Mr. Brown first began consulting to chapter 11 clients in 1990. He has written over 300 bankruptcy reorganization plans that provided both debt and equity financing for the real estate projects. In addition to consulting to property owners in chapter 11, Mr. Brown has, as a principal, restructured the debt on 2 of his own projects through chapter 11 and understands the process from the property owners’ perspective.

 

Different Types of Corporate Debt Restructuring – Restructuring Advisory Group

Reallocating resources or changing the terms of extension of a loan so that a debtor is able to repay loans to creditors is known as debt restructuring. In this process, both the creditor and the debtor make adjustments so as to smooth out issues that are temporary but are affecting the repayment of loans. Here are some ways in which they do so.

Debt-for-Equity Swap

When a debt-for-equity swap is brought into play, the creditors of a company agree to take equity in the company in return for cancelling some portion of the debt or all of it. These types of deals are generally made by large companies and happen when these companies are facing serious financial problems. Often, the result is that principal creditors take over these companies. The creditors will not get any advantage by pushing such companies into bankruptcy because the assets that remain and the amount of debt are too large. Instead, the creditors want to keep the company going and decide to take charge. Therefore, the original stakeholders find that their stake in the company is diluted to a great extent and may sometimes even be eliminated entirely.

This is also one way in which creditors deal with sub-prime mortgages. For example, if a homeowner is unable to make payments on a mortgage of $180000, they can come to an agreement with the bank reducing the value of the mortgage. In return, the bank gets 50 percent of the amount that is more than the agreed upon value of the house.

Bondholder Haircuts

The type of swap mentioned above is also referred to as a bondholder haircut. Many prominent economists have advocated this as a solution to the sub-prime mortgage crisis. They believe that changing debt into equity helps to restore faith in the financial system. It also addresses problems with credit market liquidity.

They also argue that using this method is more equitable and cheaper. Rather than the taxpayer taking a hit, it is the bank bondholders and shareholders who will do so. The method ensures that debt and interest payments are reduced and, at the same time, equity is increased. This assures investors that the bank in question is solvent and this in turn, helps to unfreeze the credit markets. The taxpayers do not have to bear the burden. The government can give short term guarantees to reinforce faith in the institution that is being recapitalized.

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Is Corporate Debt a Good Thing – Restructuring Advisory Group

debtIn the current economic climate, it is quite common that companies have more debt than they do equity. One of the exceptions to this was Google which didn’t carry any debt for some time – something that changed in 2014. In fact, most business owners would prefer to not have debt. No one actually wants debt. Most of them are quite content to live without it which is not surprising when one learns about the bad effects that consumer debt has on an economy.

However, not all debt is bad. In fact, debt can actually be a good thing for a business. Let’s take a look at why it is a good idea for a company to finance a major part of its business by using debt.

Tax Deductions

Companies are always looking for ways to save on taxes and business or corporate debt is a great way to do this. You can subtract the rate of interest on you corporate debt from your taxes – it is something the government allows you to do. Corporate taxes can be quite high and this deduction is a welcome relief. If you stop to think about it you’ll realize that often the cost of debt to your company is less than five percent once the tax break for interest is considered.

Lower Cost

Another thing to keep in mind is that financing using equity can actually be more expensive than debt. The fact is that equity carries more risks than debt does. Normally, a company isn’t legally obliged to pay out dividends to the common shareholder. This means that these shareholders will want a specific return rate. An investor will find debt a lot less risky because the company is legally obliged to pay it.

One more factor to consider is that shareholders are those people who have given the equity funding. This means that they will be the first ones to face a loss of investment if the company goes bankrupt.

Something else that makes debt cheaper is the fact that a major portion of the return on the equity is linked to the appreciation of the stock. In order to achieve this, the company has to ensure that profit, cash flow and revenue grow. Thanks to these risks, an investor will typically demand a return of at least 10%. However, loans can be found for a much lower rate of interest.