FDIC Bank Financing vs. Debt Restructuring

As a business or medical practice owner, you may find yourself in a situation where you have high-cost debt on your books, such as merchant cash advances and other high-cost loan products. Refinancing or restructuring that debt can help reduce your payments and improve your cash flow. In this blog post, we’ll explore how owners can decide which option is best for dealing with existing high-cost debt:  FDIC Bank Financing or Debt Restructuring.

FDIC Bank Financing for Refinancing Debt

FDIC Bank Financing is a type of loan that is issued by a US bank and insured by the Federal Deposit Insurance Corporation (FDIC), which is basically Uncle Sam. This financing option is typically the most coveted because it offers the lowest cost & best terms.  FDIC Bank financing is available to small businesses and medical practices, and in this instance, is often used to help them refinance existing high-cost debt. This can offer several benefits, including:

• Lower interest rates: FDIC Bank Financing typically has lower interest rates than other financing options, making it an attractive choice for businesses and practices looking to refinance their high-cost debt.
• Longer repayment terms: This financing option also allows for longer repayment terms, which can help reduce the amount of money going to service their debt each month.  It can also provide more flexibility for any practice or business entity.
• Access to additional capital: FDIC Bank Financing can also provide businesses with access to additional capital in addition to those funds earmarked for just high-cost debt refinancing.

However, qualifying for FDIC Bank Financing can be more difficult. Businesses must meet stricter eligibility requirements, including demonstrating good credit and cash flow. Additionally, the application and funding process will take more time than Debt Restructuring, with a lot more documentation required because a new loan is being generated.

It is important to note that FDIC Bank Financing will only be a viable option to those applicants who are currently in good standing with the existing high-cost debt they are servicing now.  If the bank sees that you can’t support your present debts, and don’t honor your existing signed loan agreements, then why would they want to do that same exercise again?

Debt Restructuring

Debt Restructuring is another option, especially for businesses or practices struggling to keep up with their high-cost debt payments. This option involves attorney-led teams negotiating with creditors to restructure existing debt notes, typically by extending repayment terms and/or reducing interest rates. Some benefits of Debt Restructuring include the following:

• No new loan(s).  No reverse consolidations.  No consolidations.  You can’t cure a serious debt problem by adding more high-cost debt.
• No upfront fees.
• No need for collateral.
• No minimum FICO score.
• Reduced total debt balance: Debt restructuring can help businesses save money off their total debt balance, particularly when dealing with high-cost debt.
• Improved cash flow: Restructuring debt will help improve cash flow almost immediately by potentially reducing a business’s payment amount substantially.
• No more daily repayments: You can select weekly, bi-weekly, or monthly – whatever works best for your budget and makes cash flow easier for you to manage.
• Customized repayment terms: Debt Restructuring allows the business’s restructuring team, usually led by an attorney, to negotiate customized repayment terms with their creditors, providing more flexibility to manage their debt.

Nothing is for nothing, however, so Debt Restructuring can have some specific risks, depending on your scenario.  Please reach out to discuss these and how they relate to your specific circumstances.

Choosing the Right Option for Your Business

When deciding which option is best for dealing with your business’s debt, FDIC Bank Financing or Debt Restructuring, there are several factors to consider, particularly when dealing with high-cost debt:

• Your payment status:  are you current, in arrears, or in outright default?  One’s current status will often dictate which path is more suitable.
• Total payback amount: When refinancing debt, one will be repaying back the total balance due and simply replacing that balance with lower-cost funds.  Conversely, when implementing Debt Restructuring, many elect to re-pay back less than the total balance due, and that equates to big cash flow savings to the business or practice.
• Timing: The refinancing process will take approximately 2-3 weeks for funding while restructuring debt has a more immediate effect on improving cash flow.
• Generally speaking, Debt Restructuring is more often a better strategy to pursue the practice or business that is currently struggling to make timely repayments on their existing debt obligations.  Many times, these applicants are already in default, or near default.  Typically, FDIC Bank Financing is a good refinancing strategy if the business or practice is bank-quality but just opted to use merchant cash advances or other high-cost business debt due to the speed of funding.

Ultimately, the decision between FDIC Bank Financing or Debt Restructuring will depend on your business’s or practice’s unique financial situation and needs. If your business has high-cost debt and is struggling to make its payments, Debt Restructuring is likely the better option as it can help you enhance your cash flow immediately. However, if one’s practice or business has good credit and cash flow, but just has high-cost debt on the books, then FDIC Bank Financing for refinancing debt may be a more attractive option as it offers lower interest rates and longer repayment terms. With the right option, you can become more secure, and achieve the all-weather financial and practice sustainability that you desire.