DEBT RESTRUCTURING VERSUS
DEBT REFINANCING WHAT'S THE DIFFERENCE? BARRY KORNFELD | BARRYKORNFELD.NET
Debt restructuring allows a business with excessive debt who may or may not already be in default, to avoid the risk of bankruptcy.
Debt refinancing is when a borrower leverages a newly obtained loan with better terms to pay off a previous loan.
For businesses that are in more dire situations, debt restructuring, not debt refinancing, could be the better option for them.
Borrowers with high credit scores are better suited for debt refinancing. Those with lower scores may not qualify.
Debt restructuring basically means altering an already existing contract as opposed to refinancing which starts with a new contract.
A business will apply for a new, cheaper loan and will then take the proceeds from the new loan to pay off the liabilities from an existing loan.
For example, a borrower restructuring their debt could mean modifying the frequencies of interest payments.
Many will choose to refinance debt to lower their interest rates, consolidate debts, or change the loan structure.
For businesses that are in more dire situations, debt restructuring, not debt refinancing, could be the better option for them. More often than not, debt restructuring leaves the borrower and the creditor both better off.