If your Lender has asked you to consult with a turnaround specialist, it’s because they perceive your company may be headed for serious trouble, which could impair the Lender’s ability to recover their loan. Here are some examples of events that could trigger your Lender’s concern: do any of these ring a bell?
- A Credibility Gap–Either the Lender has misunderstood the company’s condition, or the borrower does not comprehend or is not addressing the Lender’s concerns.
- A Liquidity Gap–whether or not the company is profitable, an event or series of events has occurred which has strained working capital resources.
- Permanent Impairment–Profits have declined, and the company appears not to have any viable plan to mitigate; the company is approaching or has entered a liquidity crisis.
- Loss of Confidence in Management–Management is consistently unable to meet projections or adhere to a plan or has no real plan. The company may not have accurate interim reporting, and unfavorable surprises arise too frequently. Communication between the Lender and the company may be strained.
For the Lender, these are all “warning signs,” which many companies fail to recognize as the cause of their Lender’s concern. And even if they do, they may not be aware of how to address these issues to the Lender’s satisfaction. Your Lender’s fears usually stem from reviewing financial reports (accurate or not) and borrowing base certificates. Worse, some Lenders may not receive any updated business plans or timely financial statements at all.
Whatever their underlying cause, any of these circumstances give the Lender reason for heightened concern, possibly indicating fundamental weaknesses in the company, which of course, would jeopardize the Lender’s collateral position. That is when a rapid response with a sound plan of action for repairing the banking relationship becomes paramount.
The data that your Lender may see are only warning signs or symptoms. Seldom does the Lender understand the root causes of these symptoms, which usually involve problems with the company’s operations, planning, and other management activities. Join me on The Path to a Successful Turnaround