It all started with you: the late nights, the early mornings, the sweat of your own labor building a business from the ground up. Now things are falling apart. You can’t make your payments, expenses are piling up and the debt that once powered your growth is now choking your business. It’s a hard place to be, but it doesn’t mean you’re out of options.
A Two-pronged Approach
Losing your business to creditors and getting landed with a bankruptcy should not be the only two choices. There’s a middle ground. That middle ground is a two-pronged approach: cut costs on one side and restructure the debt on the other. The first prong is operational. It’s where you dig into your books, find what you can slash, and make the business itself cheaper to run. The second prong is financial. It’s where you tackle the debt head-on by negotiating with your creditors - lowering interest rates, restructuring payments, or otherwise making the loan terms easier to manage. Acting now can mean transforming today’s risks into tomorrow’s triumphs.
You might wonder why a two-pronged plan is any better than just focusing on debt. No matter how low your interest rates are, if you’re bleeding money, you’ll run out of fuel. And the reverse is also true: cutting costs alone won’t fix a debt load the business can no longer carry. It’s most successful to perform both roles: actively work through the business (i.e., reduce costs, restructure the business and operations) and to negotiate the terms of your debt (e.g., negotiate a lower interest rate, extend the payment period, seek partial forgiveness).
But here’s the caveat: if you talk to your lenders before you’ve really cleaned up your expenses, you’ll probably get a lukewarm response. What would make a company a good candidate for restructuring? One, that it is working hard to turn around the business, and two, that it is willing to work with its creditors to develop a realistic payment plan that is based on achievable financial projections with the help of professional advisors. Additionally, the owners and senior management should be credible and transparent and work cooperatively with their creditors. And it should do it as early as possible.
Once it is determined that restructuring is appropriate, a detailed analysis of the business’s operations and financial situation is necessary to determine the entity’s ability to make debt payments and its expected cash flows. Creditors, investors, and in some cases equity holders, gather to discuss alternatives, and the terms of the debt are adjusted. Remember, secured creditors are first in line. They must be paid off first before unsecured creditors or shareholders get paid.
Three Main Routes
On the debt side, there are three main routes. Refinancing means swapping out your current loan for a new one, ideally on better terms. For instance, in April 2025, four Ohio small businesses secured state-backed loans to help them grow and reduce their debt. One tree care company from Clermont County obtained a loan to purchase equipment and refinance its debt, allowing it to lower its payments while funding expansion. Refinancing can reduce interest rates, lengthen the repayment terms, and improve short-term cash flow.
Renegotiation is when you deal directly with creditors to change the terms of your debt. You can adjust payment schedules, waive covenants, or temporarily defer payments. You retain full ownership and control over the company. A debt-for-equity swap is when you trade some or all of your debt for shares in your company. You lose some ownership, but it can be a smart move if it gives your business a second chance. Some tactics prioritize immediate relief; others are geared toward long-term recovery.
If you can lower monthly payments, reduce interest rates, or extend repayment terms, this frees up cash to keep your business running, invest, or cover essential expenses. This helps you avoid default or bankruptcy and the legal, financial, and operational challenges that come with it. Successfully restructuring debt also demonstrates a commitment to repayment, which can improve relationships with creditors and enhance your ability to secure future financing. By reducing debt service and improving cash flow, you position your business for long-term sustainability.
Not Every Plan Works
The downside is that not every plan works. If the business continues to struggle or the restructuring plan is poorly executed, the company may still fail or become worse off than before. This can lead to default or bankruptcy. Extended repayment terms can delay recovery and increase the burden on cash flow, limiting the ability to reinvest. Disagreements between creditors or equity holders can delay or derail restructuring efforts. Legal fees and administrative costs can be substantial, reducing the benefits of restructuring.
For distressed business owners, the decision to restructure their debt is not just a lifeline but a strategic imperative. Done right, it can mean the difference between finally stabilizing the business operations, keeping things in good standing with creditors, and giving a real shot at turning things around and making the business profitable again. Pair it with real cost cuts, and both prongs work together. Do it early, reach out for support.
