Turnaround Finance

Critical Turnaround Finance Principles

Act Quickly

Time is critical when your business faces financial pressure

Demonstrate Viability

Show clear plans for recovery and return to profitability

Bridge the Gap

Access funding when traditional lenders won't help

Professional Support

Work with specialists who understand distressed businesses

Critical insight: Turnaround finance isn't about throwing good money after bad. It's emergency funding for viable businesses facing temporary cash flow crises that can be resolved with the right capital injection and recovery plan.

Assess Your Finance Options

What is Turnaround Finance?

Turnaround finance is emergency funding for businesses in financial distress that cannot access traditional lending. Unlike growth capital, it's designed to stabilize operations and facilitate recovery.

Why Turnaround Finance is Essential

The Cash Crisis Reality

In a turnaround, resources are extremely scarce. There is commonly a requirement for additional finance to repay demanding creditors, fund operations while the business recovers, and provide working capital during the critical recovery phase.

• Creditors demanding immediate repayment
• Banks potentially calling in facilities
• Working capital needs during recovery
• Professional fees and restructuring costs

Without Finance, Turnarounds Fail

Without adequate turnaround finance, even viable businesses with sound recovery plans will fail. The business may be fundamentally sound but facing temporary cash flow pressures that require immediate financial intervention.

Critical Point: Turnaround finance is normally an essential component of most turnarounds. No matter how solid other recovery elements are, lack of adequate funding will cause failure.

The Fundamental Truth: Raising adequate turnaround finance is not easy, but it's absolutely essential. Understanding the challenge and adopting a disciplined approach is critical for success.

Key Characteristics

Short-term Solution

Designed as temporary financing to bridge cash flow gaps

Specialist Lenders

Provided by lenders who understand distressed businesses

Flexible Terms

Can be used for creditor payments, working capital, or restructuring

When Turnaround Finance is Needed

Creditor Pressure

Facing statutory demands or winding up petitions

Cash Flow Crisis

Unable to meet operational expenses or key payments

Banking Facilities Withdrawn

Traditional lenders have reduced or removed credit facilities

Turnaround Finance vs Traditional Lending

Traditional Bank Lending

• Requires strong credit history
• Focuses on growth and expansion
• Lower interest rates
• Lengthy approval processes
• Risk-averse approach

• Available to distressed businesses
• Focuses on stabilization and recovery
• Higher cost but accessible when needed
• Rapid deployment possible
• Specialist understanding of crisis situations

Proving Business Viability

Turnaround finance providers need clear evidence of your path from losses to profitability. An EBITDA bridge statement demonstrates exactly how you'll achieve commercial viability.

EBITDA Bridge Statement Components

Current Losses

Document current negative EBITDA position

Cost Reductions

Quantify specific cost-saving initiatives

Revenue Improvements

Detail realistic revenue enhancement plans

Target EBITDA

Show positive EBITDA achievement timeline

Critical Requirement: Your bridge statement must show credible, measurable steps from current losses to sustainable profitability. Vague promises won't secure funding.

Why Viability is Essential

• Business must generate immediate operating cash flows
• Positive EBITDA must be achievable within realistic timeframe
• Without viability, turnaround will fail regardless of other factors
• Lenders need proof, not just promises of recovery

Bridge Statement Requirements

• Quantified cost reduction initiatives with timelines
• Realistic revenue improvement strategies
• Monthly cash flow projections showing recovery path
• Clear milestones and measurable targets

Types of Turnaround Finance

Various financing structures are available depending on your business situation, asset base, and recovery requirements.

Asset-Based Lending

Secured against: Debtors, stock, plant & machinery

Typical advance: 70-85% of eligible assets

Best for: Businesses with substantial asset bases

Speed: 2-4 weeks to facility

Bridging Finance

Secured against: Property and land

Typical advance: Up to 75% of property value

Best for: Property-rich businesses

Speed: 1-2 weeks to completion

Mezzanine Finance

Structure: Debt/equity hybrid

Typical amount: £500k - £5m+

Best for: Growth-stage recovery plans

Speed: 4-8 weeks due diligence

Emergency Funding

Purpose: Immediate creditor payments

Typical amount: £50k - £500k

Best for: Urgent statutory demand issues

Invoice Finance

Secured against: Outstanding invoices

Typical advance: 80-90% of invoice value

Best for: B2B businesses with good debtors

Speed: 1-2 weeks to setup

Trade Finance

Purpose: Import/export funding

Typical amount: Order-dependent

Best for: Trading businesses with orders

Speed: 1-3 weeks to facility

Need Help Choosing the Right Option?

Every business situation is unique. Our specialists can assess your specific needs and connect you with appropriate turnaround finance providers.

Get Finance Assessment

Understanding Turnaround Finance Risks

Turnaround finance carries unique risks that both businesses and funders must carefully consider and mitigate through proper structuring and legal protection.

Legal Risk Factors

Voidable Transactions

Security created while insolvent may be set aside by courts

Director/Shadow Director Risk

Funders may face personal liability if deemed directors

Disqualification Risk

Acting improperly can lead to director disqualification

Creditor Litigation

Risk of legal action from directors, company, or creditors

Operational Risk Factors

Time Pressure Risk

Limited due diligence time increases investment risk

Creditor Action Risk

Key creditors may take action that jeopardizes turnaround

Performance Risk

Business has already proven financial difficulties

Information Quality Risk

Financial reporting may be poor or unreliable

Risk Mitigation Strategies

Legal Protection

• Specialist legal advice on all structures
• Proper documentation of all transactions
• Insolvency law compliance checks
• Director protection measures

Enhanced Security

• Maximum security coverage
• Priority arrangements with existing lenders
• Personal guarantees where appropriate
• Asset-backed structures

Process Control

• Pre-packaged deal structures
• Accelerated due diligence processes
• Creditor management strategies
• Professional turnaround teams

Critical Note: Higher risks demand higher returns. Turnaround finance typically costs 1-3% per month plus arrangement fees, reflecting the elevated risk profile and urgent nature of funding.

Eligibility for Turnaround Finance

Turnaround finance providers assess both the viability of your business recovery and your ability to service the additional funding.

Essential Requirements

Viable Core Business

Underlying business model must be fundamentally sound

Clear Recovery Plan

Detailed strategy showing path back to profitability

Adequate Security

Assets or guarantees to secure the additional funding

Potential Disqualifiers

Fundamental Business Failure

Core business model is no longer viable

Advanced Insolvency Process

Already in formal insolvency proceedings

Management Issues

Lack of competent management to execute recovery

Lender Assessment Process

1

Financial Review

Analysis of accounts, cash flow, and trading position

2

Recovery Plan

Evaluation of proposed turnaround strategy

3

Security Assessment

Valuation of available assets and guarantees

4

Risk Assessment

Overall risk/reward analysis and structuring

Remember: Turnaround finance providers are looking for businesses they can help succeed, not lost causes. A well-prepared application significantly improves your chances.

Get Application Support

Why Turnarounds Need More Cash

Turnaround situations typically require significantly more funding than normal operations due to unique cash flow pressures and working capital demands.

Loss of Trade Credit

Suppliers often demand cash on delivery (COD) terms when businesses are distressed, eliminating the working capital benefit of trade credit.

Impact: If you previously had 30-day payment terms on £100k monthly purchases, moving to COD requires an immediate £100k cash injection.

Debtor Collection Gap

Even after restructuring improves the balance sheet, there's a timing gap while existing debtors convert to cash to fund new operations.

Example: £200k in debtors may take 60 days to collect, but you need working capital for new sales immediately.

Professional Fees

Turnarounds involve significant additional costs for legal, accounting, and specialist advisory services that must be funded.

Typical costs: £50k-£200k+ in professional fees depending on complexity and size of business.

Credit Withdrawals

Banks and other credit providers often withdraw facilities, requiring immediate repayment or cash alternatives for operations.

Risk: Overdraft clawback and supplier deposit demands can absorb significant cash immediately.

Creditor Demands

Critical creditors like HMRC or secured lenders may demand immediate repayment to prevent statutory demands or enforcement action.

Urgency: Statutory demands require settlement within 18 days to avoid winding up petition.

Working Capital Recovery

After restructuring, the business needs additional working capital to restart normal trading cycles and rebuild operations.

Reality: Post-restructuring businesses often need 150-200% of normal working capital to rebuild.

The Cash Flow Reality

Immediate Cash Drains

• COD supplier payments replacing credit terms
• Professional fees for legal and advisory support
• Urgent creditor settlements to avoid legal action
• Bank facility repayments and clawbacks
• Security deposits for utilities and suppliers

Recovery Capital Needs

• Additional working capital for restart trading
• Bridge funding while debtors convert to cash
• Investment in systems and controls
• Marketing and business development costs
• Contingency reserves for unforeseen issues

Key Insight: Turnarounds commonly require 50-100% more cash than originally estimated. Ensure your funding package includes adequate contingency reserves for these additional demands.

How K2 Secures Turnaround Finance

With extensive networks and deep understanding of specialist lenders, K2 connects distressed businesses with appropriate funding sources and structures deals for success.

Our Turnaround Finance Process

Rapid Assessment

Quick evaluation of your situation and funding requirements

Lender Matching

Connect with specialist lenders suited to your specific needs

Application Management

Professional preparation and presentation of your case

Deal Negotiation

Secure best possible terms and structure for your situation

Why Choose K2 for Turnaround Finance

200+

Distressed businesses funded

£25M+

Emergency funding secured

Specialist Network:

Direct relationships with UK's leading turnaround finance providers, from emergency funders to asset-based lenders.

Emergency Finance Success

The Crisis: Manufacturing company facing winding up petition with £180k owed to HMRC, banks withdrawing facilities, and 45 staff at risk.

The Solution: K2 secured emergency asset-based funding within 72 hours, paid statutory demands, and structured ongoing working capital facility.

The Result: Business stabilized, jobs saved, and company now trading profitably with restored banking relationships.

Get Emergency Finance Call: 020 7720 8000

K2's Emergency Response:

• 24-hour financial assessment
• Direct lender introduction
• Statutory demand settlement
• Ongoing restructuring support

Crisis Finance Hotline

020 7720 8000

Managing Critical Creditor Relationships

In turnarounds, creditors often have more influence than shareholders. Identifying and managing key creditor relationships is essential for securing finance and ensuring success.

Creditor Priority Assessment

Critical Creditors

HMRC, secured lenders, key suppliers - immediate action risk

• Can force insolvency proceedings
• Essential for ongoing operations
• Require immediate attention

Important Creditors

Major trade creditors, landlords - moderate pressure

• May withdraw credit facilities
• Could disrupt operations
• Negotiation often possible

General Creditors

Smaller trade creditors - manageable through negotiation

• Usually willing to wait
• Can be included in arrangements
• Lower priority for immediate attention

Creditor Management Strategies

Early Communication

Proactive contact before problems escalate

Negotiated Agreements

Formal standstill or payment arrangements

Legal Protection

CVA, scheme of arrangement, or moratorium

Professional Intermediaries

Use specialists for complex creditor negotiations

Understanding Creditor Powers

HMRC Powers

• Can issue statutory demands
• Present winding up petitions
• Preferential creditor status
• 18-day response window

Secured Lenders

• Can appoint receivers
• Enforce security over assets
• Call in loans on demand
• Control bank accounts

Landlords

• Can forfeit leases
• Distrain against goods
• Require rent deposits
• Block property access

The Time Pressure Challenge

Why Creditor Negotiations Take Time

• Multiple stakeholders with different interests
• Complex legal and commercial considerations
• Need for formal agreements and documentation
• Internal approval processes at creditor organizations

Reality Check: Meaningful creditor negotiations typically take 4-8 weeks, but turnarounds often have days, not weeks, to act.

Accelerating Creditor Support

• Engage experienced turnaround professionals
• Prepare comprehensive information packages
• Offer realistic and credible proposals
• Consider formal insolvency protections if needed

K2 Advantage: Our established creditor relationships and proven track record often accelerate negotiations and improve outcomes.

Your Turnaround Finance Action Plan

Follow these critical steps to assess your options and secure the emergency funding your business needs for recovery.

1

Assess Urgency

• Review immediate creditor pressures
• Identify critical payment deadlines
• Calculate minimum funding required
• Prioritize most urgent obligations

2

Prepare Documentation

• Update management accounts
• Prepare cash flow forecasts
• Document recovery strategy
• Gather asset valuations

3

Engage Specialists

• Contact turnaround finance experts
• Review available options
• Select appropriate lenders
• Prepare compelling applications

4

Secure & Implement

• Negotiate terms and conditions
• Complete funding arrangements
• Pay critical creditors
• Execute recovery plan

Need Emergency Funding Now?

If you're facing statutory demands, winding up petitions, or critical cash flow issues, time is of the essence. Contact our emergency finance team immediately.

Emergency: 020 7720 8000 Get Emergency Assessment

Turnaround Finance FAQs

Common questions about securing emergency funding for distressed businesses

How quickly can turnaround finance be arranged?

Emergency funding can be arranged in 48-72 hours for urgent situations like statutory demands. More substantial facilities typically take 1-4 weeks depending on complexity and security requirements. Asset-based lending is generally faster than property-secured options.

What are the typical costs of turnaround finance?

Turnaround finance is more expensive than traditional lending due to the higher risk. Expect arrangement fees of 2-5% and interest rates of 1-3% per month. While costly, it's often the only option available and much cheaper than the consequences of business failure.

Can turnaround finance help if I've received a winding up petition?

Yes, emergency funding is often used specifically to settle debts behind winding up petitions. However, you must act quickly as the petition process moves fast. Contact specialists immediately to assess options and arrange urgent funding before the court hearing.

What security do turnaround finance providers typically require?

Security requirements vary by lender and amount. Common options include debentures over business assets, property charges, personal guarantees, or specific asset security. Some emergency funders can work with limited security if the business has clear recovery prospects.

Will using turnaround finance affect my credit rating?

Turnaround finance itself doesn't directly impact credit ratings, but the financial distress that necessitated it might already have caused damage. Successful use of turnaround finance to stabilize your business and meet obligations can actually help rebuild creditworthiness over time.