Restructure of business loans
It occurs when a creditor changes the terms of your loan agreement, thereby making your debt more affordable. Loan restructuring can take different forms, from permanently modifying your loan with a longer repayment term to lowering your interest rate or current balance. The restructuring can be initiated by the company or, in some cases, be enforced by its creditors. It is used to avoid defaulting on current debts by negotiating reduced interest rates.
There are various modalities of restructuring the debt such as;
- Lower the interest rate.
- Extension on the payment date.
- Change in terms of sanction like margin.
- Conversion of debt to Equity or similar instruments.
- Combination of any two or more.
- Restructuring the repayment schedule.
How to restructure business loans?
- Creditors may agree to forget a certain amount of outstanding debt in exchange for equity in the company.
- Entering in a debt repayment agreement. This can be done by reaching out to the creditors directly and negotiating new terms of repayment.
- Setting up of regular EMI payments require by restructuring in the terms of the loan.
- Creditors may agree to lengthen the debtor firm’s repayment period. Creditors often agree to suspend temporarily both interest and principal repayments.
- It may be possible to persuade a supportive lender to lend new monies to a borrower or to waive some of its existing debt or accrued interest if there is a clear plan and strong supporting argument for it.
- Other restructuring options involve taking actions that reduce the debt: equity ratio of the borrower with a view to putting it.