The question of whether a debt restructure will hurt your credit is one of the most frequently asked of my company, and it's actually a two-part question that needs to be answered as such -- first, will restructuring existing debt have an adverse effect on your credit?; second, will restructuring affect your ability to borrow in the future?
In response to the first question - most of our clients wait too long to seek professional help and attempt to develop a restructure proposal and program on their own. They try to paint a rosy picture because they believe that's what the banker wants to hear and they miss the mark on their projections. As a result, they come out of that restructure and cannot make their payments and their credit is now adversely affected. Missing payments or not making full payments is what damages your credit and your creditability with your bankers. It's not the fact you are requesting a restructure that hurts your credit, although the banks might be a little more cautious with you on new lending during these difficult economic times.
The second part of the question - will it affect the ability to borrow in the future - has to be broken into two categories: Commercial Banks and Manufacturer Finance Groups.
Commercial Banks will evaluate your business and proposal based on your payment history. If you have made your curtailments to your bank, with or without a restructure, then you should have very little difficulty borrowing in the future. But if you have had a series of delinquencies, then your ability and the rate will be reflected accordingly.
Manufacturing Finance Groups are another story. Today these institutions are being controlled by the financial groups and their requirements might be different. But I believe that once the recession is over, the sales and marketing groups will have greater influence than they have today and this will loosen up credit within our rental industry.
In any case, those contemplating the need for a debt restructure and its ramifications should consider using the services of a professional company well-versed in all aspects of the program.
Questions or comments? Contact Mike Farley at [email protected].
