Top Strategies for Restructuring Your Small Business Debt

Top Strategies for Restructuring Your Small Business Debt

Are you struggling to repay your current business debt?

Are cash flow problems making it difficult to pay off your obligations that you had planned? 

Well, if it’s the case, you’re not alone. According to the 2019 Small Business Credit Survey conducted by the Federal Reserve Banks revealed that “70% of small businesses have outstanding debt”

Debt is a part of small businesses’ everyday financial reality, but unexpected events (like a pandemic or recession) can make it difficult to repay your debt on time.

When you don’t have sufficient funds to repay your business debt, running and growing your small business can be more difficult. And in some cases, debt can lead to poor credit score, bankruptcy, and many other financial problems. Creating a plan to restructure your small business debt may be the solution you need. 

What is Small Business Debt Restructuring?

Debt restructuring is the process used by a company or an entity facing cash flow issues or financial distress to avoid the risk of default on existing debt. 

In this process, companies are allowed to reduce the interest rates on loans or extend the repayment terms to reduce or negotiate their overdue debts.

Strategies to Manage Your Small Business Debt


When you obtain a new loan to pay off existing business debt is known as refinancing. Typically, small business owners refinance their debts to reduce monthly payments, lower interest rates, or change loan programs to easily reduce their existing obligations. Additionally, some business owners use refinancing to combine multiple debts into one.

Benefits of refinancing your small business debt:

More Cash Flow

Refinancing your debt to a lower rate can allow you to free up a significant amount of cash flow. When you have sufficient cash available, you can run and grow your business and re-invest the extra working capital in a variety of business purposes, from buying inventory and equipment to expanding business location, making payroll, hiring employees, and more. 

A More Flexible Business

Lenders are usually hesitant to finance a young business or businesses that have an existing debt with other creditors. However, if you’re among the fortunate small businesses that survive their startup years, you’ll have more financing leverage in the coming times.

Using debt refinancing as a stable business owner means you’ll likely have more financing options to choose from in the future. More options mean you can find and compare a variety of loan offers and choose one that best fits your current financial needs and budget. 

Switch to a Fixed Rate 

If a variable rate loan making it difficult to pay your monthly installments then refinancing business debt is a great way to switch a variable rate loan to a fixed-rate loan. A fixed-rate loan can be very beneficial in the long run if rates are currently low and expected to rise, so you can better predict your monthly payments. 

Business Debt Consolidation

Business debt consolidation is the process of combining multiple business debts that you may have, into a single one. Generally, it is done by obtaining a new business loan to close all the existing ones, so that you now only have one loan to pay off. 

 However, debt consolidation can make your debt easier and more affordable only if you’re eligible for a loan at a lower interest rate. The goal of debt consolidation is to make debt repayment simpler by just dealing with a single creditor. 

 For example, if you took out invoicing financing to cover day-to-day expenses, equipment financing to purchase office computers, and a term loan to buy real estate, all of which have different repayment terms. You could consolidate all these small business debts with a single loan to have one payment at a fixed interest rate.  

 Though business debt consolidation could be a great strategy to restructure your business debt, here are some of the many important things you need to consider before proceeding ahead.

  • Don’t go for debt consolidation if the new loan has a higher interest rate
  • As you need a big amount to pay off several debts, your personal score will decide the loan amount
  • A profitable business having positive cash flow can qualify for a lower rate
  • Businesses that have longer business history generally receive more favorable loan terms and rates.

Financing Options for Restructuring Your Business Debt 

  • Business Term Loans - You can borrow a lump of cash to consolidate or refinance your business debt with a business term loan. Short-term loans are generally repayable over a period of 12-18 months while long-term loans over 5-10 years.
  • SBA Loans – You can eligible to secure up to $5 million through SBA loans that you can use to pay off a large debt balance. 
  • Business Lines of Credit – It may be a great funding option to pay off business debt other than loans, such as paying the outstanding payment of your vendors or suppliers. 
  • Business Credit Cards - It’s a great financing option if most of the business debts are credit cards. 

Restructuring business debt can help you make your financial life easier. However, it’s important to review your business budget and compare a variety of business financing options from multiple lenders to see if you can do any extra restructuring.

Related Articles