Bank Threatens to Call a Loan Default: Ensuring Recovery over Failure

September 18, 2019  |  By Phoenix Management  |  2 Minute Read

In this entry of our “First Call” blog series, we outline options for when a bank calls a loan default.

You just got a call from the bank that a loan default is in your company’s future. After a steady decrease in finances, you aren’t surprised, but suddenly the pressure is on to carve out an immediate path to recovery. The heightened anxiety you feel in this situation can mislead you to make hasty decisions to preemptively cut costs. While change must be made, it is critical to address the situation in a thoughtful and strategic manner. But where do you begin?

If your bank threatens to call a loan default, there are several approaches you can take to achieve financial recovery. Here are four options:

1. Preserve Cash by Making Cuts

While it is important to carry out an immediate plan of action, it is important to not react impulsively. For instance, your first instinct may be to cut back on workforce or pay. However, such resolutions can not only have detrimental impact on employee morale and confidence, but also often fail to address the root cause of the issue. As a result, companies may experience temporary benefits, but the future is at risk, and more thoughtful actions need to be taken for a true, long-term turnaround.

2. Invest in the Business

On the other hand, ownership may decide to pour additional capital into the business, either financing it via its own personal assets or from an outside investor. While this may buy time, it fails to address the core issues that lead to the problem in the first place. As a result, the business will likely run into the same financial situation down the road, this time, with no where to turn for additional capital. Instead, you need a strategy that will tackle the problem at its root, promoting long-term success for a sustainable future.

3. Bring in an Accountant or Lawyer

Conversely, you may turn to an accountant or lawyer for strategic advice, but these individuals are professionally trained to focus on financial or legal business details. Yet, a loan default is so much more than a financial or legal problem. Rather, it reflects a more systemic problem for the organization. As such, a lawyer or accountant often can provide insight into the numbers, but lacks the knowledge and experience needed to provide the necessary guidance in the case of a complex loan default situation. Without previous turnaround involvement or careful consideration of all operational factors, they can only solve one part of the larger problem. 

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4. Call in an Expert

For a holistic approach that looks beyond the numbers, you can call in a true turnaround professional who is well versed in recovery efforts and has experience across all business segments. With an expert on hand, you can develop realistic goals with a focus on long-term value and a shared vision. Skilled turnaround managers work to identify businesses’ core competencies, differentiating the profitable sectors from the ones that need more work. And for those particular weak points, the expert will introduce new processes and valuable assets that may have otherwise gone unnoticed by executives with legacy mindsets. With a confident, collaborative team in its corner, your organization is empowered to strategically relieve itself from financial debt in the most sustainable way possible. 

Turnaround Success with Phoenix

While accountants and lawyers cannot comprehensively address issues associated with loan defaults in complex business situations, Phoenix experts can. We look beyond numbers and tackle the situation at its root—operational challenges. Our experts uncover practical and effective solutions to improve profitability and liquidity while creating a turnaround plan for long-term sustainability in unique businesses like yours. With over three decades of experience, we are able to rapidly and decisively devise plans that consider the full picture, addressing all options and potential outcomes.

If your bank threatens to call a loan default, Phoenix can operate as an extension of your management team, providing the guidance needed to effectively recover finances right now and in the future. Contact us today to learn how a Phoenix professional can help turn your business around.

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