How Restructuring Debt Can Help Your Business

Most companies don’t like to think about debt.

Granted, debt frequently is a necessary evil, but once a company lines up its financing, it tends not to think about it again outside of paying it down.

And that’s a big mistake.

Every business should annually review its debt to ascertain if there’s a way to improve the picture and not wait for a problem to develop.

Think about where your personal life was back in, say, 2011, and compare it to the present day. Your marriage may have ended – or a new one was started. Perhaps a parent passed away. That son or daughter who was a gawky middle school student is now a confident young adult preparing to enter college.

Or consider the Philadelphia Phillies, who won the most games of any baseball team in 2011 (although they didn’t win the World Series) and are now coming off a season where they were the league’s worst team.

Your business has probably changed, too.

Maybe that product you launched has wildly succeeded. Could it be that your chief competitor went belly up? Perhaps improved technology had decreased your production costs – and increased your profits.

In other words, life is always changing, so what made sense then might not make sense now. Interest rates may be different, there could be new incentives offered by various levels of government and your business simply may be more appealing to lenders because you’re generating higher levels of collateral, credit and cash flow.

Back in 2011 (or whatever year you choose), it’s possible you were rejected for a loan backed by the  federal Small Business Administration  (SBA), forcing you to work with an alternative lender who charged high interest rates and featured unfavorable terms.

Today, you may well be eligible for an SBA loan or a conventional bank loan at much better rates.  Just the interest savings alone could sharply improve your financial picture.

At the very least, a debt review will push a business owner to at least consider loan options that hadn’t considered in the past.
That said, debt review isn’t for the faint hearted.

Your current lender isn’t going to be happy to see you go – especially if you’re paying an exorbitant amount of interest – and may suggest that you risk running out of money or losing your flexibility if you change lenders.

Don’t fall for scare tactics, which means you must be able to resist the pressure to stay put, not to mention plain old inertia. Just remember that your primary allegiance is to your business, not your lender.

There really is no downside to a debt review. If things haven’t progressed as much as you had hoped, you can always stick with your current financing. The only thing lost is a bit of time – and it’s certainly not time wasted since, at the very least, you’ll know exactly where the company stands and what financial options you might have, both now and in the future.