3 Ways Companies Can Handle Debt

| Jul 28, 2020 | Business Transactional Work |

Many businesses are struggling in the current economic climate. That’s especially true for those already in troubled waters before the pandemic hit.

Most businesses incur some debt to keep up operations. But when revenue and profit margins run thin, it can be hard to remain stable. If companies find that government programs can’t assist them, there are other things they can do to save themselves that don’t involve bankruptcy.

Combating debt before it becomes too much

No matter the length of their term-loans or the lines of credit they have, here are a few ways companies can legally and effectively handle their debt:

  • Work out better payment terms with the lenders: Right now, businesses need to have a steady cash flow to remain afloat. Unfortunately, monies owed to lenders or creditors can get in the way of that, especially if their loans come with high interest rates. If that’s the case, finding ways to reduce minimum payments can be helpful. Minimum payment reduction can allow businesses to protect their cash flow while providing lenders with monthly payments.
  • Negotiate away surprise fees: Some loans can come with hidden costs. Those can include origination fees, prepayment penalties and payment processing fees. Some lenders even put cross-collateralization clauses in their loans. These provisions can allow lenders to seize money from other company accounts. During tough times, the last thing businesses want to do is pay exorbitant expenses they can’t afford. A trusted legal partner can help them understand the fine print of their loans and help negotiate better terms.
  • Communicate early warning signs with bankers: Company profitability can change overnight. And if businesses have certain debts, they should make sure to tell their lender before things get out of control. Delivering the bad news calmly, early and clearly can help reduce conflict and allow the two parties to work out a solution.

Companies can stay afloat with the right approach

Debt can be burdensome for businesses of all sizes. But with a little grit and a strategic approach, companies can ride out the uncertainty and come out stable on the other side.

FindLaw Network