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Expert Answers to Biz Questions
Listen in! Pick up some expert advice to a reader's question that we selected from CyberSchmooz.
The Biz Question
Business debt: How to you handle your obligations and debt collectors
Probably, you may be undergoing a pretty severe financial crisis. Your creditors may be sending you incessant letters or debt collectors are calling you at odd hours of the day asking for payments. However, given your financial health it is unlikely that you'll be able to efficiently manage your debt obligations as well as your debt collectors.
In this case, you can put a stop to all the collection harassment unleashed against you by opting for a debt relief option that doubles up as a bankruptcy alternative that is technically known as debt restructuring.
What is debt restructuring?
Being an entrepreneur, you can use debt restructuring in order to prevent yourself from falling back in making the repayments by lowering the rate of interest charged on the loans.
You can also issue redeemable (or callable) bonds as a means to restructure your debt problems in the future. In this debt relief method, you'll replace all your financial obligations with the new ones but then at reduced rate of interest.
However, you can also restructure your business debts by modifying the loan terms and provisions mentioned in the agreement, thus becoming debt free.
When should you opt for debt restructuring?
If you encounter the following problems in running your business properly, then probably you need to restructure your business debt in order to get relief from your financial obligations as well as debt collectors:
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Reduced seed capital - In case of reduced capital, any amount of debt will become uncontrollable.
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Delayed receivables - A lot of your customers aren't making any payments as agreed, while others are slow to oblige.
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Reduced sales figure - Due to the economic uncertainty, soaring inflation and complacency in consumer spending, your company's revenue has gone down considerably, thereby decreasing your income.
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Grappling with lawsuits - Your creditors/debt collectors may have won judgment against you that is usurping whatever little money you are making at the moment.
What are the steps to debt restructuring?
Here are some of the ways that can help you in restructuring your business debts:
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Negotiate with the creditors - You must have a compelling repayment plan at hand before approaching your creditors for help. You'll have to present your repayment plan to them and be prepared to make some alterations in it, if that is what makes the creditors agree to your proposal. However, if there is an impasse with regards to the repayment terms, then work out an amicable debt repayment plan with your creditors. In addition, few creditors may prefer to share your company's equity with you in lieu of loan repayment. In this case, try to not offer them too much of it since you may lose control over your own business by doing so.
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Issue company shares further - In order to avoid getting bankrupt, you can issue more shares as a means to raise more capital from the financial markets. However, you need to inform your all your shareholders regarding your decision to issue fresh shares on the backdrop of falling stock values of your company. Though your shareholders may not be happy to learn about the falling value of your company's shares, yet they would be pleased to know that you are trying out all stops to stay away from bankruptcy.
Apart from the above options, you can approach debt restructuring companies for help. However, before opting for any one of these debt relief companies, it is very important for you to run a thorough check of the Better Business Bureau website in order to find out the most legitimate one.
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