You’ve worked hard to build your company. But now, payments are falling behind, expenses are mounting, and the debt you once fueled your growth is threatening your company’s survival. It’s a tough spot, but you still have options.
This is where debt restructuring enters the conversation. Rather than risk bankruptcy, restructuring provides a practical middle ground. It offers a path to successful recovery, minimizes losses, and preserves the lender-borrower relationship. Taking action now can turn today’s risks into tomorrow’s success.
In this article, we’ll explore the pros and cons of debt restructuring, providing clarity on when it’s worth the effort and when it may not be the right solution. We’ll also share how NYFG works with owners and lenders of distressed businesses to achieve the best possible outcome.
When Does Debt Restructuring Make Sense?
Debt restructuring isn’t a one-size-fits-all solution. But when the circumstances are right, it can be a powerful tool for recovery. Knowing when to pursue restructuring (and when to consider other options) is important for protecting your business’s value.
Restructuring works best when there’s a real foundation for recovery and collaboration. It’s a viable path when:
1. You are actively working to turn things around. You’ve taken steps to cut costs, adjusted strategy, or improved operations. There’s movement in the right direction.
2. You are open to developing a viable payment plan- with outside help. you’re willing to engage the right support to create a realistic, data-driven plan grounded in achievable projections.
3. You’re transparent and cooperative. You and your senior management are credible, engaged, and willing to work constructively with creditors.
When these elements align, restructuring can lead to better outcomes for everyone involved. The earlier the conversation starts, the greater the chances of a successful resolution.
What is debt restructuring?
Debt restructuring is the process of renegotiating the terms of your company’s existing debt to improve its financial stability. It’s typically used when a business is under financial pressure but still has a viable path to long-term recovery.
Here’s how the process generally works:
1. Financial Assessment
A thorough review of your company’s operations and financials helps evaluate its repayment capacity and cash flow. This step provides a realistic view of the business’s situation and lays the groundwork for informed decision-making.
2. Stakeholder Engagement
Creditors, investors, and sometimes equity holders come together to explore alternatives. The aim is to restructure the business in a way that restores short-term profitability, enabling lenders to offer more sustainable terms while preserving the greatest possible recovery for all stakeholders.
3. Renegotiation of Debt Terms
Terms may be adjusted to include lower interest rates, extended payment timelines, or partial forgiveness. These changes are designed to give the business breathing room while maintaining accountability to its obligations.
Remember that if the business has secured lenders, the fiduciary duty of the board and ownership shift from shareholders to those secured creditors. Secured creditors/lenders have priority and must be repaid before any unsecured creditors or shareholders receive distributions.
Common Types of Corporate Debt Restructuring
There are several restructuring strategies, each with its own distinct implications on your business:
- Refinancing.
This involves replacing existing debt with a new loan, ideally under more favorable terms. For example, in April 2025, four Ohio small businesses received state-backed loans to support growth and reduce debt. One of them, a Clermont County tree care business, secured a loan to purchase equipment and refinance its debt, allowing the company to reduce payments while funding expansion.Refinancing like this can lower interest rates, extend repayment periods, and improve short-term cash flow. - Renegotiation.
In a direct restructuring, you work with creditors to modify the terms of existing debt, adjusting payment schedules, waiving covenants, or temporarily deferring payments. Unlike other strategies, renegotiation allows you to retain ownership and control while easing financial pressure. - Debt-for-equity swap.
This is when you agree to swap some or all of the debt for shares in your company. While a debt-for-equity swap does mean giving up some ownership, it can be a smart move if it gives your business a second chance at growth and recovery.
Each option comes with trade-offs. Some prioritize immediate relief; others focus on long-term recovery. Understanding the implications of each approach is key to selecting the right strategy for your business.
Debt Restructuring Pros and Cons: What You Need to Consider
Debt restructuring is rarely straightforward. It requires careful planning, clear communication, and a strong understanding of both the risks and potential rewards. Here’s a balanced view to help you evaluate your options:
| PROS | CONS |
| Improved cash flow | Risk of failed restructuring |
| Reduced financial burden | Extended repayment timelines |
| Preservation of business operations | Stakeholder disputes and resistance |
| Avoidance of bankruptcy | |
| Maintaining relationships with creditors | |
| Long-term financial stability |
Potential Benefits
1. Improved Cash Flow
Restructuring can lower monthly payments, reduce interest rates, or extend repayment periods. These adjustments free up cash, allowing the business to continue operations, invest in growth, or cover other essential costs.
2. Reduced Financial Burden
By adjusting debt terms, businesses can reduce the strain on their finances, avoiding the looming threat of default or bankruptcy. This enables businesses to allocate resources more effectively, particularly during tough times.
3. Preservation of Business Operations
Debt restructuring can help businesses stay afloat during financial hardship. This gives the business a chance to recover, maintain jobs, and generate income, which could lead to a more favorable long-term outlook.
4. Avoidance of Bankruptcy
Debt restructuring offers an alternative to bankruptcy. By restructuring, businesses can avoid bankruptcy’s legal, financial, and operational consequences.
5. Maintaining Relationships with Creditors
When done correctly, restructuring demonstrates a company’s commitment to repaying its obligations. This can strengthen relationships with creditors, potentially improving terms, facilitating future loans, and opening doors to strategic partnerships.
6. Long-Term Financial Stability
A successful restructuring can lead to a more sustainable financial position. It can provide a more sustainable business model, free from the overwhelming burden of excessive debt.
Potential Risks
1. Risk of Failed Restructuring
Not every plan succeeds. If financial performance continues to decline or the plan is poorly executed, the company may end up in a worse position, potentially leading to default or bankruptcy despite the effort.
2. Extended Repayment Periods
While restructuring may offer flexibility, it often stretches out repayment periods. This can delay financial recovery, strain cash flow, and limit your ability to reinvest in core business operations.
3. Stakeholders’ Dispute and Resistance
Restructuring often involves multiple parties with competing interests. Disagreements among creditors or equity holders can slow progress or derail negotiations entirely. Legal fees and administrative costs can also erode the financial benefit if not managed carefully.
Understanding the pros and cons of debt restructuring gives you the clarity to make informed, strategic decisions, whether to move forward or pursue alternative solutions.
How NYFG Can Support You Through Debt Restructuring
At NYFG, we guide business owners and lenders through every stage of the restructuring process, starting with a clear, unbiased assessment of the company’s financial health. Our team works closely with stakeholders to identify the right strategy, whether it’s renegotiation, refinancing, or a more complex debt-for-equity solution.
We don’t just offer theoretical advice—we roll up our sleeves. From cash flow modeling to lender and vendor negotiations and operational turnaround support, we help develop and execute a realistic path forward that maximizes recovery and minimizes disruption.
In every case, our goal is simple: stabilize the business, restore confidence, and protect long-term value.
- Strategic Assessment
Our first step is always to determine whether debt restructuring is the right move. In one engagement with a staffing company suffering from years of operational losses, our initial assessment uncovered costly inefficiencies and outdated financial controls. We tightened reporting timelines, secured an R&D tax credit, and negotiated a new financing agreement that reduced interest expenses.By assessing your operations, leadership team, and financial structure, we help determine whether restructuring is the right tool and give both you and your lender the clarity needed to make informed decisions.
- Creating Practical Debt Solutions
Our team brings decades of experience in distressed finance. We develop debt solutions tailored to your business’s realities—balancing the flexibility needed for recovery with the accountability lenders require. Whether that means negotiating new terms, securing bridge financing, or building out a phased repayment plan, we deliver practical, results-oriented strategies.For example, we were brought in to help a limousine company overwhelmed by debt. We stepped in as CRO, developed and executed a business plan that allowed the company to pay its secured creditors. We streamlined operations, restructured the sales team, and initiated a sales process. After 14 months, the company was sold, and all creditors (secured and unsecured) were paid in full.
- Risk Mitigation
We understand the risks and how to manage them. In both examples above, we identified and addressed critical issues early, from improving reporting timelines to uncovering tax credits and stabilizing operations.Our approach helps you build financial safeguards, prioritize urgent business needs, and establish controls to monitor progress. With NYFG by your side, you’ll remain informed, proactive, and protected throughout the restructuring process.
For business owners facing financial distress, debt restructuring isn’t just a lifeline; it’s a strategic decision that can preserve long-term value. When executed effectively, it stabilizes operations, strengthens creditor relationships, and provides your company a real opportunity to regain momentum and return to profitability..
At NYFG, we bring hands-on experience, financial clarity, and a collaborative approach to every restructuring engagement. Whether you’re weighing your options or ready to build a practical recovery plan, we’re here to help.
Want to explore how we can support your turnaround goals while giving your company a path to stability? Contact us today.
