Managing the Recovery Journey
Part 5: The Lender’s Perspective – Control Without Chaos
Recovery isn’t an event. It’s a journey that typically takes 12-24 months and involves multiple phases, setbacks, and course corrections along the way.
As a lender, your role evolves throughout this journey. What starts as crisis management often transitions through stabilisation, improvement, and eventually sustainable performance. Each phase requires different oversight approaches, different stakeholder communication, and different decisions about support versus pressure.
The businesses that recover successfully rarely follow smooth, predictable paths. Progress is uneven, problems emerge unexpectedly, and solutions often require multiple iterations before they work effectively. Your challenge is maintaining appropriate engagement throughout this process whilst adapting your approach as circumstances change.
Understanding the typical recovery journey helps you calibrate expectations, anticipate challenges, and make better decisions about when to maintain patience versus when to escalate intervention.
The phases of business recovery
Most business recoveries follow recognisable phases, though the timeline and specific challenges vary significantly based on business type, market conditions, and management capability.
Crisis stabilisation (Months 1-3). The initial phase focuses on stopping deterioration and establishing basic operational control. This typically involves cash flow stabilisation, decision-making rhythm restoration, immediate cost reduction, stakeholder communication to maintain confidence, and basic accountability mechanisms. Progress is often slow and setbacks are common as management learns what works.
Foundation building (Months 3-9). Once basic stability is achieved, focus shifts to addressing root causes and building sustainable improvement. This includes process improvements, capability building, market position stabilisation, operational efficiency gains, and systematic problem-solving development. This phase often shows the most visible progress as changes begin taking effect.
Momentum creation (Months 9-18). With foundations in place, successful recoveries begin building positive momentum that becomes self-reinforcing. This involves scaling successful initiatives, investing in growth opportunities, building organisational capability, and preparing for reduced external support. Progress accelerates but new challenges often emerge as ambitions increase.
Sustainable performance (Months 18+). The final phase transitions from recovery mode to normal business operations with enhanced capability. The business demonstrates ability to handle challenges independently, stakeholder confidence is restored, financial performance is consistently meeting expectations, and management has developed resilience for future challenges.
Not all recoveries reach the final phase. Some businesses stabilise but never build momentum. Others show early progress but can’t sustain improvement. Understanding where businesses are in this journey helps calibrate appropriate lender response.
Evolving your oversight approach through recovery phases
Your oversight approach should evolve as businesses progress through recovery phases. What’s appropriate during crisis management becomes excessive during sustainable performance, and what works during momentum building might be insufficient during foundation building.
Crisis phase oversight. During stabilisation, closer oversight is often necessary and welcome. Management is typically overwhelmed and benefits from external structure and accountability. This might include weekly cash monitoring, frequent communication, approval requirements for significant decisions, and direct involvement in critical choices. The goal is providing stability whilst management develops effective operating rhythm.
Foundation phase transition. As stability improves, begin reducing oversight intensity whilst maintaining visibility into progress. This might involve transitioning from weekly to monthly formal reviews, moving from approval requirements to consultation processes, focusing reporting on outcomes rather than activities, and encouraging management to take increasing ownership of decision-making.
Momentum phase calibration. During momentum building, oversight should support rather than constrain progress. This often involves quarterly strategic reviews rather than monthly operational meetings, exception-based reporting rather than comprehensive updates, focus on strategic direction rather than operational details, and increasing management autonomy whilst maintaining relationship quality.
Performance phase normalisation. Once sustainable performance is demonstrated, oversight should return to normal commercial lending standards whilst maintaining relationships developed during recovery. This includes standard financial reporting and covenant monitoring, periodic strategic discussions, relationship management rather than intensive oversight, and preparation for potential future challenges.
The key is timing these transitions appropriately. Move too quickly and you might miss emerging problems. Move too slowly and you might hinder progress with unnecessary oversight.
Stakeholder communication throughout recovery
Recovery journeys involve multiple stakeholders with different interests, information needs, and patience levels. Managing these relationships effectively throughout the journey protects all interests whilst enabling recovery progress.
Internal stakeholder alignment. Keep your own organisation informed about recovery progress, challenges, and outlook changes. This includes regular updates to credit committees, early warning about potential problems, education about recovery timeline expectations, and preparation for different scenario outcomes. Internal alignment prevents mixed messages and ensures appropriate decision-making authority.
Management relationship evolution. Your relationship with management should evolve from crisis support to strategic partnership as recovery progresses. This involves transitioning from directive guidance to collaborative consultation, increasing trust whilst maintaining appropriate oversight, providing strategic perspective rather than operational direction, and building relationships that support long-term business success.
Other lender coordination. When multiple lenders are involved, coordination becomes critical for effective recovery support. This requires shared information about business progress, aligned approaches to covenant compliance and modifications, coordinated decision-making about additional support, and prevention of conflicting requirements that burden management unnecessarily.
Broader stakeholder awareness. Recovery progress affects customer, supplier, and employee confidence. While you can’t manage these relationships directly, you can support management’s stakeholder communication by providing confidence in business stability, appropriate references when requested, assistance with supplier relationships where possible, and strategic perspective on stakeholder management approaches.
Recognising and managing setbacks
Recovery journeys inevitably include setbacks that test both management capability and lender patience. How these setbacks are managed often determines whether recovery continues or stalls.
Distinguishing setback types. Not all setbacks are equally concerning. Temporary operational setbacks often resolve quickly with management attention. Market-driven setbacks might require patience but don’t necessarily indicate management problems. Strategic setbacks might indicate fundamental issues requiring intervention. Implementation setbacks often suggest capability gaps that need addressing.
Management response assessment. How management handles setbacks reveals capability and suggests appropriate lender response. Do they acknowledge problems quickly and honestly? Do they adapt approaches based on learning? Do they seek help when needed? Do they maintain stakeholder confidence during difficulties? Do they demonstrate learning that reduces likelihood of similar problems?
Intervention calibration during setbacks. Setbacks often require temporary increases in oversight and support whilst management addresses problems. This might include more frequent communication until issues resolve, additional resources to accelerate problem-solving, temporary approval requirements for significant decisions, or access to specialized expertise for specific challenges.
Recovery momentum protection. The goal during setbacks is addressing immediate problems whilst protecting overall recovery momentum. This requires maintaining focus on long-term objectives, preventing setback responses from undermining successful initiatives, supporting management confidence whilst addressing problems, and maintaining stakeholder relationships during temporary difficulties.
Learning integration. Each setback provides learning opportunities that can strengthen future performance. Encourage management to capture lessons learned, adjust approaches based on experience, build capability to prevent similar problems, and share insights across the organisation to improve collective performance.
The refinancing decision timing
One of the most critical decisions during recovery journeys is when to consider refinancing or restructuring existing facilities. This timing significantly affects both business prospects and lender outcomes.
Too early refinancing risks. Refinancing before recovery is well-established often leads to poor terms, continued performance problems, or business failure despite financial restructuring. Early refinancing might not address underlying operational problems, management capability gaps, or market positioning issues that caused original difficulties.
Too late refinancing risks. Waiting too long for refinancing can limit options and damage stakeholder confidence. Late refinancing might occur when business performance is declining again, alternative lenders have limited interest, or management has lost credibility with stakeholders.
Optimal timing indicators. The best refinancing timing typically occurs when operational improvements are demonstrated and sustainable, management has proven capability to handle challenges, stakeholder confidence has been restored, financial performance is consistently meeting expectations, and market conditions support reasonable refinancing terms.
Preparation for refinancing success. Successful refinancing requires significant preparation including comprehensive performance documentation, operational improvement evidence, management capability demonstration, stakeholder confidence verification, and realistic financial projections based on demonstrated performance.
Transition to normal banking relationship
The ultimate goal of recovery management is transitioning from intensive oversight back to normal commercial banking relationships whilst preserving lessons learned and relationship quality developed during recovery.
Timing the transition. The move to normal relationships should occur when business performance is consistently meeting expectations, management has demonstrated capability to handle challenges independently, stakeholder confidence is restored and stable, and operational improvements are embedded and sustainable.
Relationship preservation. Recovery often creates closer relationships between lenders and management than normal commercial interactions. Preserving these relationships provides value for future business development and creates early warning systems for potential future challenges.
Documentation and learning. Document lessons learned from recovery experience including what approaches worked well, what intervention techniques were most effective, how management responded to different oversight levels, and what early warning signs proved most reliable. This institutional knowledge improves future recovery management.
Ongoing monitoring enhancement. Normal monitoring should incorporate insights gained during recovery about business-specific risk factors, management capability strengths and limitations, operational indicators that predict financial performance, and stakeholder relationships that affect business stability.
Future challenge preparation. Recovery experience provides insight into how businesses and management handle pressure. This knowledge helps prepare for potential future challenges by understanding likely management responses, effective support approaches, and early intervention strategies.
Building recovery management capability
Effective recovery management is a skill that improves with experience and systematic learning. Building this capability within your organisation creates competitive advantage in managing challenging credits.
Experience documentation. Systematically document recovery experiences including initial problem assessment, intervention approaches used, management responses observed, stakeholder dynamics encountered, and ultimate outcomes achieved. This creates institutional knowledge that improves future recovery management.
Training and development. Provide training for relationship managers and credit officers on recovery management approaches including operational signal recognition, management capability assessment, oversight calibration techniques, and stakeholder communication methods.
External expertise access. Develop relationships with operational consultants, turnaround specialists, and industry experts who can provide specialized expertise during recovery situations. This external support often accelerates recovery whilst reducing lender risk.
Benchmarking and peer learning. Participate in industry forums and peer networks that share experience with recovery management. Learning from other lenders’ experiences provides perspective on effective approaches and common pitfalls.
Systematic review processes. Regularly review recovery outcomes to identify what worked well and what could be improved. This systematic learning improves future recovery management and reduces likelihood of repeated mistakes.
The long-term value of effective recovery management
When recovery management is done well, it creates value beyond just protecting current exposures. It builds relationships, develops expertise, and creates competitive advantages in serving businesses through challenging periods.
Relationship deepening. Businesses that recover successfully with appropriate lender support often become long-term, loyal customers with deeper banking relationships and expanded business opportunities.
Market reputation enhancement. Effective recovery management builds reputation in the market as a lender that supports businesses through difficulties whilst protecting interests appropriately. This reputation attracts higher-quality business opportunities.
Risk management improvement. Experience with recovery management improves overall risk assessment and early intervention capabilities, reducing likelihood of problem credits and improving portfolio performance.
Team capability development. Recovery management experience develops relationship manager and credit officer capabilities that transfer to all client relationships, improving overall relationship quality and business development effectiveness.
The journey from drift to sustainable performance is rarely smooth or predictable. But with appropriate oversight, stakeholder management, and intervention calibration, lenders can protect their interests whilst enabling business recovery that creates value for all stakeholders.
The key is maintaining perspective throughout the journey, adapting approaches as circumstances change, and recognising that effective recovery management is ultimately about enabling businesses to build sustainable performance capability rather than just solving immediate problems.
This completes The Lender’s Perspective series. Working as Chair/NED, Interim CEO, or Executive Coach, I help senior management teams multiply their strategic knowledge and operational effectiveness. I also work with lenders to provide operational insight during challenging periods, helping bridge the gap between financial monitoring and business reality.
