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A once thriving business can easily take a turn for the worse when their finances aren’t in order. Even when a business is drowning in debt, there can still be a light at the end of the tunnel and there are steps they can take to stay afloat. Oftentimes, the word “bankruptcy” or “debt restructuring” can invoke fear for a business owner and make them feel as if all hope is lost. However, there are significant differences between filing for bankruptcy and debt restructuring.

Filing Bankruptcy

When filing bankruptcy, business owners are looking for debt relief, but it isn’t always the best option. Bankruptcy comes with devastating and permanent consequences for both the business, personal credit, and your finance companies. The process calls for a significant amount of money spent on legal and administrative costs before any creditors are even paid––if ever. More often than not, a bank or creditor will be more willing to welcome other alternatives than go through the bankruptcy process.

Debt Restructuring as an Alternative

Debt restructuring is sometimes a better alternative than filing for bankruptcy for both the creditor and the borrow. While a business will not be completely relieved of debt as it would have been with bankruptcy, it does not face the same permanent and devastating consequences. Instead, debt restructuring is an effective way to address large amounts of debt by negotiating with creditors to change an original agreement’s terms. 

By opting for debt restructuring instead of filing bankruptcy, a business can reduce its debt burden and be more qualified for recapitalization. Debt restructuring can be a better choice in the long run compared to bankruptcy because it helps businesses maintain relationships with banks and creditors, which is imperative for any business.  

If a business chooses debt restructuring to reduce the amount of debt owed or extend debt payment terms, the business may be able to start making a profit again while still paying off its debts. Restructuring debt, and not just straight debt settlement, overall offers a clean break and will help a business avoid the long-term personal and professional consequences of filing bankruptcy.

To fully understand how debt restructuring works and if it is the right thing to do for a business, it’s essential to consult a debt restructuring expert