A process which allows modification in the terms of a loan, due to financial distress faced by the borrower by renegotiating its debts to prevent it from going bankrupt. The process involves negotiation regarding reduction in debt or alteration in repayment plans.
Restructuring usually takes place when there is danger of bankruptcy of the borrower.
The restructuring may involve extending the period of repayment, reducing the total amount owed, or exchanging a portion of the debt for equity in the debtor company.From cost point of view it is better to both the parties viz the client gets a significant discount or a more flexible repayment schedule and for the bank it is less expensive than what a bankruptcy would have been.
Refinancing means replacement of the old debt with a new debt without financial crisis being the reason.Restructuring means making modification in the terms of loan due to financial distress faced by the client.