In the business world, cooperation between lenders and borrowers is essential and, as in any relationship, communication is the key to success. This is especially true for a financially distressed borrower. While maintaining positive and transparent communications with lenders is an important part of running a business during both good and bad times, the task simultaneously becomes more critical and more difficult when a business is having financial problems.
As soon as a loan is transferred from a bank’s relationship managers to its workout department, the quality and quantity of information the borrower is required to produce often increase dramatically. Facing the possibility of a loss, the lender needs to know the exact condition of its investment. Companies that normally generate figures monthly or quarterly may suddenly find themselves having to develop weekly or even daily reports.
Preparing accurate and effective reports is often the only way a company can keep its lenders’ trust and convince them that a business’s operations remain viable. Unfortunately, these increased reporting demands come precisely when companies are entangled in other problems and are therefore ill-equipped to handle any new responsibilities.
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