What a funder wants to see before agreeing to a restructure

A restructure request is a credit decision, made quickly, on the documents you supply. The person deciding is asking three questions in sequence, and if the answer to the first is no, the other two never get asked.

Test one: can you pay something now

Not the full amount. Something.

A creditor's first filter is whether the account is capable of producing cash at all. A proposal that starts payments in 60 days reads as a request to stop paying. A proposal that starts Monday at a reduced amount reads as a workout.

Illustrative only — an account with four missed remittances of $700 each, $2,800 in arrears. A proposal that includes a $2,800 catch-up over 60 days alongside a reduced go-forward remittance is a different document from one that asks for the arrears to be added to the tail and nothing paid today. Both may be agreed. Only one is agreed quickly.

If you can put something on the table on day one — even a token relative to the balance — say so in the first sentence of the request.

Test two: does the plan close the gap

The creditor is checking arithmetic. Does the proposed payment, multiplied by the proposed term, actually retire the obligation, and does the business generate enough to make the proposed payment?

This is where most requests fail, and they fail because the business owner has not done the arithmetic either.

Illustrative only — cash available for debt service of $11,200 a month. Proposed total debt service across all positions after the restructure: $9,500 a month.

• Coverage: 11,200 ÷ 9,500 = 1.18
• Headroom: $1,700 a month

A coverage figure above 1.0 with visible headroom is a plan. A proposal that leaves coverage at 1.02 is a plan that fails on the first slow week, and an experienced credit person will see that immediately.

Work out your own coverage before you propose a number. If it comes out below about 1.15, propose a smaller payment over a longer term rather than a number you cannot hold.

Test three: is there anything new on the table

Restructures are granted more readily when something changes in the creditor's favour. Options, roughly in order of how much they move the needle:

• A partial payment at signing, from cash, an owner contribution or an asset sale.
• Additional collateral — equipment, a deposit account control agreement, a specific receivable.
• An additional guarantor, where one exists who is willing.
• Shortening rather than lengthening — a higher payment after the trough, so the creditor is out sooner than under the original schedule.
• Reporting. Monthly statements, a rolling thirteen-week forecast, access to a read-only bank feed. Costs you little, materially reduces their uncertainty.
• A verifiable milestone, such as a signed contract that starts on a date.

The package

Send all of it at once, in one email, before you are asked. A request that arrives in six instalments over two weeks reads as disorganisation, which is the thing you are trying to disprove.

1. A one-page cover letter. The ask in the first sentence, with numbers and dates. What caused the shortfall. Why it ends. What you are contributing.
2. Bank statements, three to six months, every account, complete pages.
3. A debt schedule. Every obligation: creditor, original amount, current balance, payment, frequency, maturity, position. Include everything. It is all on the statements.
4. A thirteen-week cash flow forecast, weekly, with the trough visible and the assumptions stated.
5. Recent financial statements, or a year-to-date profit and loss if that is what exists. Do not invent audited accounts you do not have.
6. The evidence for the recovery. External and checkable.
7. The proposed terms in writing, as you want them: new payment amount, frequency, start date, end date, treatment of arrears, treatment of the deferred amount.

What weakens a request, badly

The sequencing detail that matters most

Approach while current, or as close to current as you can manage. An account in good standing is handled by servicing, whose job includes keeping it performing. An account in arrears moves to recovery, whose objectives are different. The trigger point is in your agreement — usually a number of missed payments or the expiry of the cure period.

If there are multiple positions, decide before you start whether you are approaching all of them or one. Restructuring one while the others run unchanged usually fails, because the relief gets consumed by the creditors who did not agree.

What to have ready for the questions

Four questions come back almost every time. Write the answers down before you send anything.

• What happened, specifically, and when?
• What have you changed so it does not happen again?
• What are your other obligations, and are you asking them for the same thing?
• What happens if we say no?

Answer the last one honestly and without theatre. A calm, factual account of the alternatives is more persuasive than a threat, and a creditor who concludes you are bluffing will simply decline.

What a funder can agree to, how any resulting document is drafted, and what it does depend on your contract and on the law of the state it selects. This describes how these decisions are usually made and is not legal advice.