Loan restructuring lends itself to the default settings, but also to the expansion, consolidation strategies and/or investments of reorganization.
About expansion plans of adding tasks where the deferral or extending payment terms can produce funds for this acquisition. Consolidation, meantime, could mean integration with other companies as forward or backward link, where the working capital position plays an important role. Reorganization of investment may require background infusion, deferment, for use in say, average price/warehouse position.
The practice is basically asking for more loans without additional infusion of funds that lenders tend to be more sensitive. From small to large business loans, restructuring have become widely accepted in the circles of the financial institution (FI).
Conventional types of restructuring
(A) the grace period
Grace periods are principal payment holidays or interest, either for a short period, but where in all cases, the rate of interest (usually) continues with further withdrawals probably called penalties.
However, there have been cases where postpay is detached to form a separate loan account bringing the same basic conditions. Total loans must maintain a position as required by the warranty.
Request for grace periods are resorted to short run as media strategies down. For example, suppose your portfolio contains 500 shares at a purchase price of the share and P50. The performance was not as expected and after dividends, further price plunges to P25/sharing. However, the silver lining is that, after the market correction and a six-month horizon, analysts are predicting a resurgence at a level of P42/share. Deferring P25, 000 on depreciation for buying 1,000 shares would lower the average purchase price for 33.3 P/share. At an altitude of P42, total total disposal P60, 000 and post a gain for the portfolio of P13, 000 or half deferred depreciation against a current paper loss of about the same amount.
(B) extension of repayment
In case of acquisition of capital where recruiting into the bottom seems too small while is extended credit, a restructuring of the repayment period of a suspended account can come in handy. Fresh premium refund period extensions against the remainder of a term.
FIs rating usually extensions to three factors: (1) collecting experience-normal account management policies nominating 30% to this factor. (2) collateral position as required by the policy-50% risk (3)-in terms of industry & management – 20%.
Industry risk, designated as systematics, is the industry’s performance over a period. A positive performance of the company against a stagnation or even a decline in the industry’s growth could earn an extension.