Should You Restructure Your Business Loan?
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How much do you need?
What is business loan restructuring?
- Lower the interest rate.
- Extend the repayment term.
- Forgive a portion of the loan.
- Allow you to sell collateral to reduce the debt.
Calculate your new monthly payment
Pros and cons of restructuring a business loan
Pros
Improves cash flow by reducing monthly loan payments.
Can help avoid loan default or bankruptcy.
Doesn’t require new financing.
Cons
Requires lender approval, which isn’t guaranteed.
Requires proof of financial hardship.
May increase total interest costs.
Forgiven debt could be taxed as ordinary income.
Lenders might require additional collateral or other guarantees.
When should you try to restructure a business loan?
Explore other options first
- Seek short-term relief from your lender. If there’s an end in sight to your financial hardship, your lender may offer forbearance or temporarily allow interest-only payments. These options can give you breathing room to recover from a short-term setback.
- Refinance your loan. Replacing a current loan with a new one that offers a lower interest rate or longer repayment period can help lower payments. This can be especially useful if your credit score has improved, since you may qualify for a loan with more favorable terms. Just keep in mind that refinancing a business loan may result in higher interest costs in the long run. You can compare new financing options on NerdWallet's list of the best small-business loans.
- Consolidate your debt. If you’re having trouble paying back multiple loans, consolidating that debt into a single loan may help. If your business debt consolidation loan offers a lower interest rate or extended term, your monthly payment may be lower than the combined total of what you’re currently paying.
- Reduce expenses or improve revenue. Restructuring a business loan should be your last resort. Before going down that path, explore ways to cut costs or seize business growth strategies that may improve cash flow long term.
How to approach your lender
- Know what you can afford. Figure out what kind of payment structure you can realistically manage. Do you need to extend the repayment period? Pay a lower interest rate? Ask to have some of your balance forgiven? Coming to the table with a clear understanding of what will help you repay the loan builds trust and shows you’re serious about staying on track.
- Come up with a game plan. Lenders want to know you stand a chance of turning things around in your business so you can continue making payments on your loan long term. That’s why it helps to have a business plan drafted that outlines how you’ll stabilize your business and improve cash flow. It can also help to highlight times when you’ve overcome past business setbacks.
- Have your information ready. You’ll have to back up your request with documentation, such as recent financial statements. You’ll also likely have to submit a hardship letter that explains the situation, how it started and your recovery plan. Having all this ready to go speeds up the decision-making process.