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Using Debt Capital to Restructure Your Business

Restructuring your business could be a complex process, requiring careful planning and consideration. Yet, done correctly, could be a strategic step in achieving the goals you have set for yourself and your company.

For businesses looking to restructure and refocus their operations in tough economic times, debt capital can be a powerful tool. By taking on debt, businesses can gain access to the funds they need to make changes that improve their long-term prospects and increase profitability. 

It provides funds with increased flexibility for decision-making processes, and carries relatively low costs compared with other types of financing options available today. 

Business Restructure - SME Capital

So what are the key uses of debt capital when supporting a restructure?

Increase Cash Flow

Accessing funds through debt capital is often quicker than other forms of financing due to its short-term nature. 

This means that businesses can access the cash they need faster, allowing them to use it more effectively and quickly get projects underway. With cash flow improved, businesses can focus on restructuring efforts without worrying about where they will find the funds they need. 

More Flexibility

Debt capital also enables businesses to have more flexibility when making decisions around restructuring their operations. Unlike other forms of financing, debt capital does not require businesses to give up equity or control over decision-making in exchange for funding.

This preserves their autonomy and allows them to pursue change without having shareholders or venture capitalists interfere with the direction of their business.

Lower Costs

Taking on debt can also result in lower costs for your business by helping you avoid putting business expenses on high-interest credit cards.

Additionally, since repayment terms are usually straightforward, you won't have to worry about unexpected costs associated with repayment down the line. This helps keep costs low as you go through your restructuring process and ensures that you don't take on more expenses than necessary during a time when money is already tight.  

What key Financial Considerations should you review?

Financial analysis: Conduct a thorough analysis of your company's financial position, including revenue, expenses, profitability, and cash flow. Identify any financial challenges or areas of improvement that need to be addressed through the restructuring process, and how debt capital would help.

Cost reduction: Identify areas where costs can be reduced or eliminated. This could involve streamlining operations, renegotiating contracts with suppliers, downsizing the workforce, or implementing more efficient processes. Consider the potential impact of cost reduction measures on the overall financial health of the business.

Cash flow management: Cash flow is crucial during a restructuring process. Evaluate your projected cash flow needs and ensure that you will have sufficient liquidity to support the restructuring plan with a business loan.  

Financial forecasting: Develop financial projections that incorporate the impact of the business loan and restructuring plan. Consider potential changes in revenue, expenses, and cash flow. Use these projections to assess the financial viability of the restructuring and to communicate the expected outcomes to stakeholders.

Financial reporting and compliance: Ensure that the restructuring process adheres to applicable accounting standards and financial reporting requirements. Keep accurate records and documentation to facilitate financial reporting and compliance with regulatory obligations.

If you are considering using debt capital as part of your restructuring efforts, it's important that you understand all aspects of this type of financing before committing yourself or your business financially. 

A financial advisor or accountant can help guide you through this process so that you make informed decisions every step of the way. It is essential to involve financial professionals, such as accountants or financial advisors, who can provide expert guidance and assist in analysing the financial implications of the restructuring plan.

Taking on a debt loan to restructure your business can provide financial support and opportunities for growth. However, it is essential to carefully analyse the financial implications, assess risks, and develop a solid repayment plan to ensure the loan serves its intended purpose without risking the long-term financial health of your business.

If you would like to discuss acquisition financing in more detail or our wider funding capabilities do get in touch.

About SME Capital

SME Capital was founded to support the growing number of SMEs who face difficulty or frustration in accessing capital through traditional methods. We understand the importance of real and trusted relationships in the SME lending market and have dedicated Regional Directors based across the UK. By combining traditional lending expertise with the latest in data analytics, we are supporting established UK SMEs with their long-term objectives and business ambitions.

August 2023

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