Between commercial property mortgages, company credit cards, and personal loans, businesses can incur debt that can become difficult to manage and pay off. For many in the healthcare or dental profession, consolidation and restructuring can help ease the debt burden on their practice. Learn what defines each approach and which might be more beneficial in different situations.
Through a debt consolidation approach, borrowers can refinance their company’s loans to get lower rates. Along with this, they can merge several existing loans into one loan, instead of having to make different monthly payments to several companies at higher interest rates. Consolidation results in lower monthly payments overall and can result in paying off loans more quickly. Money that had gone to paying higher interest rates can now pay down the loan principal.
Debt consolidation requires a new finance application and results in a brand new loan contract in place. Financial hardship is not a prerequisite for consolidating loans. A side benefit of this approach is that it can, in many instances, increase the primary borrower’s credit score. It’s important, though, to make all payments on time to keep a good score.
With debt restructuring, borrowers discuss with creditors what amount can be paid back. Typically, credit counselors work with each borrower to try to negotiate a lower amount that the lender agrees to accept. When the counselors are successful, the borrowers end up repaying less than the full principal amount that’s owed.
Restructuring can be more challenging because negotiations are involved, but no new loan applications are required since any approved changes are made to the original loan contract. Financial hardship may need to be ascertained before the restructuring is approved. It’s important to realize that a restructured approach means defaulting on the original loan, and credit scores may decline for up to three years after the final loan payment is made.
What Questions to Ask
When sitting down with a loan officer or credit counselor to discuss consolidation and restructuring options for your business, here are some helpful questions to ask:
– Which loan debt management option do you recommend and why?
– What are the pros and cons of each approach?
– What new monthly payment and interest rate can I expect from each approach?
– How will my credit score be affected?
At Carolina Piedmont Capital, Inc., we are committed to helping healthcare and dental professionals find the best financial solutions for their business’s specific situations. We understand the nuances of today’s financial marketplace, and we offer professional guidance to help our clients make more confident decisions. Get in touch with us to discuss loan restructuring and consolidation options, create a personal financial statement, or address any other financial needs. You can reach us at 888-216-3761 and 919-904-3553.