The Partnership Premium

When a business gets into trouble, its lender and its owner can end up fighting over what is left. But by the time that fight starts, the biggest opportunity may already have been missed, preserving the value that pays them both. Hello, I'm Brendan Richards from Rebound Advisory. This is The Partnership Premium, the second in our three-part series. In The Proximity Premium, we looked at seeing trouble early.

This time, we're asking what a lender should do with that early warning. The answer starts with a simple idea. A viable business is worth more than an argument over its remains. While a business is performing, lender and owner have a lot in common. They want healthy margins, reliable cash flow, and customers who keep coming back.

Their interests are never identical. Owners may want growth or distributions that make a lender uncomfortable, but there is usually enough value to support both sides. As that value falls towards the debt, the relationship changes. The owner's buffer disappears. The lender starts worrying about recovery.

Every request for time becomes harder to trust, and every condition can feel like a threat. The practical challenge is to engage before that contest takes over. Here's a simple illustration. Imagine a business worth ten million dollars with six million of debt. There is four million of value behind the owner's stake.

Now imagine the business value falls to seven million. The debt hasn't changed, but most of that buffer has gone. If value drops below six million, the lender is exposed too. Those are illustrative numbers, but the message is real. Both parties have a reason to protect the business while there is still room to act.

A stronger security position doesn't by itself rebuild a lost customer or restore a damaged margin. And recognizing the problem is only the beginning. Expected credit loss accounting is designed to look forward. A provision can move before default. But changing the risk grade, booking a provision, and actually helping resolve the problem are three different things.

What changes the outcome is a decision about the business, what needs fixing, who will do it, how it will be funded, and how quickly the plan can work. So what does partnership actually mean? The lender brings time and flexibility where the risk justifies them. That might mean a temporary change to repayments or a standstill while a credible restructure is assembled. The borrower brings transparency, a workable plan, and a willingness to make difficult decisions.

Think of a sound business losing cash on an unprofitable product range. More time is useful if management is closing that range, collecting overdue accounts, and reducing costs against a dated plan. More time achieves very little if the same losses continue and each forecast simply pushes the recovery another month away. That's why every accommodation needs conditions. A live thirteen-week cash flow.

Reporting that explains the drivers. Clear milestones, named owners, and agreed review dates. The lender should be able to see what its patience is buying. The borrower should know exactly what it has committed to deliver. For example, if a promised asset sale slips, the response shouldn't be another unexplained extension.

Revisit the cash forecast, test the remaining options, and decide whether the plan still works. The point of a milestone is to trigger a decision when the facts change while a useful response is still possible, and the board must remain responsible for running the company. Partnership requires informed challenge and negotiated support with appropriate advice on the arrangements. There are four tests I would put around that conversation. First, can we trust the information?

Second, does management do what it says it will do? Third, is there a viable business underneath the financial stress? And fourth, is there enough cash and time to carry out the plan? If those tests don't hold, more patience can make the loss larger. Sometimes an orderly exit or formal enforcement is the right early action.

The objective is to preserve value, and that requires an honest comparison of the available paths. For credit teams, the first conversation matters enormously. If a borrower expects disclosure to trigger an immediate confrontation, they have a reason to keep quiet. A structured conversation about the facts and the options gives them a reason to speak sooner. Trust still needs verification.

Independent scrutiny is most useful while there are choices left to examine. The reward can extend beyond the immediate recovery. A viable customer who trades through can remain a customer, refer others, and strengthen the lender's reputation. Those benefits won't carry the same weight for every lender, but they belong in the decision. So take one name on your watch list and ask, are we using this time to execute a plan or simply waiting for the next review?

That is the partnership premium. Early sight followed by disciplined action while both sides still have something to protect. If this raises questions about an exposure in your book, speak with us at Rebound Advisory. Act while there's still value to protect.