For both individuals and businesses, there is no scarier word than “debt”. Debt can be unimaginably hard to crawl out of and can take a toll. Luckily, there are options to help those in a bad financial situation get out of debt without completely ruining their credit history. For both individuals and companies who are crippled with debt, debt restructuring is an effective solution to avoid the risk of default on existing debt as well as to lower your current payments and get the immediate cash flow relief you need.
The debt restructuring process is a great way to try to reduce the cash-flow outlay necessary to carry your existing business loans or personal finance goals. Depending on the situation, there are three different types of debt restructuring:
Business
Anywhere from large corporations to small businesses, debt restructuring is a viable option when struggling with finances. Debt restructuring for large companies offers a number of tools to assist them out of their financial blunder, including debt-for-equity swap. A debt-for-equity is the preferred option for companies and happens when creditors agree to cancel anywhere from a portion to even the entirety of a business’s outstanding debts in exchange for equity or part ownership of the business. Creditors prefer this option because they’d rather take part ownership or control of the company to keep the business open so they’ll have a greater chance of paying off their debt.
Debt restructuring for smaller, more everyday businesses is a much different story. Restructuring unsecured debt, such as merchant cash advances can be done without any upfront fees, no collateral requirements, and no FICO minimums.
Sovereign
Countries are just as likely to fall into debt as businesses. When a country finds itself in debt, it is known as sovereign debt, which is issued by the national government in a foreign currency to finance the issuing country’s growth and development. Sovereign debt can also be referred to as government debt, public debt, and national debt.
When a country wants to restructure its sovereign debt, it often opts for bondholders. This means taking the debt they owe to public sector institutions that would handle the impact of a country’s default better than a private sector.
Individual
Regular everyday people also have the option to restructure their debt. Individuals have the ability to negotiate their terms with creditors and tax authorities. An example of this is when someone has a mortgage but they are unable to keep up with the payments. They can try to reach an agreement with the lending institution to reduce the mortgage to 75% and in return the lender would receive a portion of the house sale proceeds when it is later sold by the mortgagor.
While Individuals and businesses can try to negotiate these terms by themselves, it is better to have the help from trusted debt relief professionals.