If you are facing a turnaround or restructuring you need to actively manage your banking relationship and do everything possible to gain the support of this critical stakeholder.  

From the bank’s perspective, the lending relationship starts with sales and marketing and, after the loan is made, moves to maintenance and observation. If covenants are violated, an early warning system for financial trouble, and not remedied, your loan may be moved to a special accounts group for administration and collection.  

The approach of the special accounts group will vary from institution to institution.  Some banks may be aggressive and seek to immediately collect as much as possible.  Others may be open to support a turnaround or restructuring plan to enhance the bank’s possible recoveries in the future, with the added benefit of saving your business and jobs.

In every troubled situation, the borrower requires an accommodation from the lender.  But the lender is focused on their recovery (collection), which may have nothing to do with extending an accommodation to the borrower.  The bottom line is that, for the bank it always boils down to deciding whether to support the borrower and its turnaround plan or not.

Therefore, it is up to you to provide as much ammunition to the special accounts managers as possible to give them a reason to support you.

Here are some tips:

  • Admit you’re in trouble:  If possible, approach the lender proactively before they conclude on their own that there is a covenant violation. 
  • Have a plan:  Come prepared with a plan to fix the problem and be forthcoming and honest with inevitable negatives throughout the process. Build a turnaround plan that is optimistic enough for the bank to support but also realistic.  The plan must include a limited number of key performance metrics (not revenue) that drive your business and that can be used to quickly monitor your performance.
  • Stop the bleeding:  Stop losing cash.  Now.  Right now.  Do everything possible to scale back your cash needs and do not make the bank’s secured recovery position worse than it already is. 
  • Get a turnaround team:  Your current management team is probably not suited for the battle.  You need experienced turnaround professionals, like a CRO, and legal counsel experienced at dealing with special accounts groups and insolvency matters.
  • Watch your attitude:   Know your situation and the personalities involved.  Bankers are human beings with egos like all of us and they have gone through this process many, many times.  You haven’t. 
  • Be committed:  Cancel vacations.  Cancel golf and boondoggles.  Deliver on plans, on time.  Prove that you are taking this seriously.

For more tips and discussions, check out Episode 15 of Martinis With Scott with David Cohen, national leader of Gowling WLG’s Financial Institutions & Services Group in Canada and past global chair (2017) and past global president (2016) of the Turnaround Management Association.

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