It is about time to start thinking about debt again folks. Well, you never really quit thinking about debt, but it is the time of the year you have to address it and give it a little extra attention.
We all know how things are looking out there. Prices are down and some areas have also been hit hard with disease or weather events. It is hard sometimes to sit down and really take it all in and run all the numbers for the current year much less start looking at next year. As much as it is an unappealing thing to do you still have to do it. Might as well tackle it now, especially the debt part! Your banker will thank you and you will thank yourself when you are done before the rest of your banker’s clients all go running in at one time!
Now let’s get to talking about your debt! First off, is it manageable? Based on how this year turned out and how projections look for next year – Can you comfortably handle your debt load? Will you be stretched to make it work? Or No matter how you stretch it ends still won’t meet? Assess how tight you think you could possibly be and how comfortable you are with that scenario.
If that scenario it’s not comfortably manageable then start researching your options. Start with looking at your current debt structures. Is something being aggressively amortized that could be toned down for year or so? Could some debts be combined and re-amortized? How are your payments timed and are they timed correctly to coincide with cash flow? Begin in structures first to see where you have wiggle room. Find the wiggle room you can there before you consider taking on new debt.
If you find some wiggle room in your debt structures then devise a plan on how to take advantage of a new structure. Approach your banker to see if they think the plan is workable and can help you move forward. Sometimes these plans don’t work out exactly as you planned. Your banker’s hands may be tied and not be able to fully execute your plan. However; they should come back to you with a counter of what they can do. Negotiate from there, getting some relief (even if it’s small) without taking on new debt is a win.
Then there are situations where you need access to additional funds. If you have a lot of equity and are experiencing a squeeze due to prices, then hey cash in some equity and get some long term working capital on a low fixed rate. It is better to be forward thinking about your cash needs and not be in a pinch later when you need money fast for operating expenses. Bankers understand and appreciate your forward thinking, I promise! I know sometimes it’s not as easy when you don’t have a lot of equity. Go ahead and work on a plan if this is your case and approach your banker. Don’t be discouraged if you don’t even know where to start, your banker has seen cases like yours plenty of times and can help you realize your options.
The moral of this story is – Don’t Wait! Go ahead and look at your debt now. Sometimes if you are in the market for some “creative financing” or restructuring the process may take longer than usual. You will also have more peace of mind knowing you have one less thing to worry about!
Also I need to put this disclaimer in her for my own peace of mind: Debt options are available to you that can help you make it through trying times. However; you must be mindful of the future when making these debt decisions for right now. If you re-extend an amortization – Yes that helps reduce your debt load, but it also reduces the rate at which you are regaining your equity in your asset. Just as you are reassessing your debt for trying times, you should also reassess your debt when times improve. Get back on the aggressive amortization when you can, because you never know when another downturn is coming and you will need that regained equity!
Finally, there is no one right or wrong answer to debt as it is highly specific to your business and business plan. When assessing your options keep in mind what you need now, but also what you want to accomplish in the future.