Freelancers often suffer from financial bottlenecks that need to be bridged quickly. If, for example, large orders are not paid on time or a high bill for new furniture or equipment for the practice or law firm has to be paid, it can quickly become difficult to raise these sums from the current income.
In such situations, it makes sense to use the overdraft facility for the current checking account. But this should only ever be a temporary solution that can be replaced as quickly as possible by debt restructuring for freelancers.
This is how debt restructuring works
Debt restructuring for freelancers is about replacing a short-term loan, usually the overdraft facility, with long-term financing. Installment loans, which are repaid in equal monthly amounts, are particularly suitable for this. The installment loan is then fully repaid at the end of the term.
For freelancers it can sometimes be difficult to find a suitable loan because many banks and savings banks do not like to lend to this group of customers. As a rule, it should be sufficient to prove your creditworthiness by presenting the last three income tax assessments, which provide sufficient income from the freelance work. If this is not the case, as a freelancer you can try to obtain the necessary credit by providing collateral or guarantors.
The benefits of debt restructuring
Debt restructuring for freelancers is advisable for various reasons. The security aspect plays a particularly important role: While a bank overdraft facility may be terminated in whole or in part at any time and without stating reasons, this is not the case with an installment loan. With freelancers in particular, an unexpected repayment of the overdraft can quickly lead to a situation that threatens their existence. In contrast, banks are bound by the loan agreement for installment loans and may not simply terminate it as long as the agreed monthly installments are paid on time. Another weighty argument in favor of debt restructuring for freelancers is the much lower interest rates on installment loans.
While interest rates of well over 10 percent are generally required for overdrafts, the interest rates for installment loans are usually in the low single-digit range. For both types of loan, the lower the interest rate, the better the customer’s credit rating is rated by the lender. Last but not least, debt restructuring is also worthwhile for freelancers because this way the debt is systematically reduced. All too often, an overdrafted account stays in the red for months and years without any significant repayment, which is not possible with an installment loan.