Think big in the new year: 3 tips on debt management from the government

I’m sure that, as we move into the new year, you’re thinking about how to grow your business. I’ll tell you who else is focused on growth this year—our government. When you think about it, the government is just a big business. Albeit some kind of (poorly run) non-profit. It’s certainly fair to say that governments bear many similarities to a corporation. They have consumers they must satisfy. They have revenue and costs. And, most importantly, they borrow in order to grow. Just like any company, growth is a key measure of success for a government. In fact, the stakes are much higher for governments to grow their economies—people freak right out when growth doesn’t happen. And given that our government hasn’t experienced a recession in more than two decades, let’s see what they have to tell us about managing our growth well. The trick is managing the debt:

1.    Rollover the debt

The first trick a government will employ to manage its debt is something called a ‘rollover’. Essentially, they will ask the creditor if they can push back repayments for a certain amount of time at market rates. This particular strategy is extremely common, and should it be a government or a small business, creditors are usually quite open to ‘rolling over’ a debt in this way. Remember, at the end of the day, the creditor just wants their money back with as little hassle as possible. Rollovers sound quite boring, but can actually be quite effective. For example, it might just give you the breathing room you need to handle other, more pressing debts, or perhaps undergo something like an informal restructure to boost your cash flow.

2.    Refinance the debt

But, perhaps your loan is a little larger, or over a longer term than the creditor is comfortable pushing back. On loans approaching five years, a government is more likely to look at refinancing. Refinancing is another delay tactic, but here, rather than ask the existing creditor to push back repayments, the government will just find a new creditor to buy the debt and thus, set back the clock. Refinancing is not super common in the world of government, although it’s not unusual. But in the world of business, it not only serves as one of the key methods of encouraging rapid business growth, but also is a critical step in helping a struggling business get back on its feet.

3.    Reprofile the debt

But of course, sometimes a government can’t pay at all. Take Greece for example, who have turned to their EU counterparts and shrugged their way through a very long debt crisis. In this case, the government might employ what’s known as ‘reprofiling’. Very simply, the government asks the creditor to ease the terms of the loan—to reduce it perhaps, or more likely to stretch it out over a longer term. Remember, of course, that a creditor wants its money. Forcing a debtor to collapse doesn’t really help anyone. With careful negotiation, the same process can occur for a business. Ask creditors to make the terms of the loan more lenient so everyone wins. Protip: having someone on hand who speaks the language of your creditor will prove useful. Call your lawyer or accountant or debt professional for advice before you jump in. The most skilled negotiators might even be able to make a reprofiling deal look so promising to creditors that they begin to put pressure on the creditors who are yet to be convinced. That’s what the smarted governments do. Like refinancing, this is a common tactic during a larger business restructure.

Government strategies at the small business level

So, there we have it! Three of the key management strategies employed by governments around the world to manage their debts. Now, you might be thinking that governments get a bit more wiggle room with their lenders than the average business owner, and you’d be right. But never forget, creditors just want their money back. With the right negotiation points and a good negotiator, there’s no reason one of these options wouldn’t be right for your business.

If one of these options stands out to you, give My Business Path or your preferred debt solutions expert a call today!

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