What Is Debt Restructuring?
Debt restructuring is a process opted by business entities or individuals in order to prevent going into defaulters’ list on their existing debt. It involves negotiating a lower interest rate and extending the repayment period of the loan. This procedure is beneficial when a debtor is experiencing a cash crunch due to various extraneous factors which have hampered its ability to service its debt obligations in the present form/terms. Additionally, the creditor may even agree to clear the debt in exchange for equity in the business.
Even countries might restructure their loans in certain situations.
How Does Debt Restructuring Work?
There are various modalities of restructuring the debt such as, (i)lower the interest rate, (ii) extension on the payment date, (iii) change in terms of sanction like margin, (iv) conversion of debt to Equity or similar instruments, (v) combination of any two or more, (vi) restructuring the repayment schedule within the original repayment schedule etc. In order to prevent the business from coming to a standstill, this system is highly favourable. Moreover, you can even pay back your dues on time if you are expecting adequate cash flows in the future.
Benefits of Debt Restructuring
Debt restructuring can offer many benefits for your business, but most importantly, it helps you emphasize making your business survive and sustain. Some of the benefits are listed below:
- Free up your cash: deferment and /or reduction in instalments/ interest rate free up the immediate cash and avoid mismatches.
- Reduced interest rates:existing loans may be at a higher interest rate because your firm was in urgent need of funds. Therefore, choosing debt restructuring for your business can save your firm from over-the-top interest rates. Thus, you can keep the money for your forthcoming plans. There is also a possibility that the lenders may agree to lower interest rate initially and get compensated with a higher interest rate at a later date, to avoid any immediate cash flow mismatches
- Make your finances more organized: If you have taken multiple loans for your business, then debt consolidation will help you plan your finances more wisely. You can make sound decisions by converting these loans into in single loan with a restructured repayment schedule to match the existing and projected cash flows.
Functions Of Debt Restructuring
As per the RBI, debt restructuring has several purposes for coming into existence.
- To ensure that a timely and transparent mechanism is present to support the borrowers in financial distress.
- To reduce the losses incurred to the lenders and shareholders through this procedure
- To protect and preserve those corporations that are facing difficulty due to any reason
- To revive the firms keeping in mind its stakeholders and creditors.
Hence, debt restructuring is a win-win situation both for the lenders and the borrowers. Moreover, the small businesses who are thinking of expanding their business and have just set their foot into the business industry can benefit from this process.
To sum up, debt restructuring has proved to be a sigh of relief for corporations and entrepreneurs who wish to make their businesses flourish and meet debt obligations. When searching for the best debt restructuring in India/ best debt restructuring companies in India/ best debt restructuring companies in Noida/ best debt restructuring companies in Mumbai/ best debt restructuring companies in Gurgaon/ best debt restructuring companies Delhi-NCR, look no further than availing the services of FinLender India. We strive to keep our clients a priority. Moreover, we have a strong bond with the leading banks and financial sponsors to fulfil your financial needs.
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