Quick answer
Turnaround finance supports a business recovering from a difficult period, such as losses, lost contracts, disruption or tax arrears, while it executes a plan to return to profit. Lenders need to see that the cause has been addressed and that recent trading is improving. Property-secured loans are common, because poor historical figures make unsecured lending difficult.
Key points
- Lenders fund recoveries, not ongoing losses
- Show what caused the downturn and what has changed
- Recent months matter more than last year's accounts
- Property security often carries a turnaround loan
The year that went wrong
Floods, a lost anchor client, a key staff member leaving, a supplier failing, a renovation that ran over, a partner dispute. Most business owners have had at least one year they would rather forget. The financial statements from that year then follow the business around, and any lender relying on last year’s tax return will see a loss and stop.
Turnaround finance looks forward as well as back.
What lenders need to believe
| Question | Evidence that helps |
|---|---|
| What went wrong? | A short, honest explanation |
| Has it been fixed? | Changes made: costs cut, prices raised, staff restructured |
| Is trading recovering? | The last three to six months of bank statements |
| Is tax under control? | Current BAS lodged and paid, or a plan in place |
| What will the money do? | A specific use tied to the recovery |
Typical uses
- Clearing tax arrears that built up during the bad year.
- Consolidating expensive short-term debts taken out to survive.
- Funding stock or staff as sales recover.
- Investing in the change that drives the recovery, such as equipment or a new channel.
Why property is often involved
When the historical figures are poor, unsecured lenders struggle to justify a loan. Property-secured lending relies on equity and a plan to repay instead. Loans from as little as $20,000 up to $5,000,000, and no pre-approval valuation is required and interest that can be prepaid or added to the loan, give a recovering business room to execute without a heavy monthly repayment.
An illustrative example
A seafood restaurant on the waterfront had a terrible year after road works cut foot traffic for months. It ran up a tax debt and two short-term loans. With the works finished and covers back to normal, the owners used a second mortgage over their home to clear the tax and the loans. Interest was added to the balance, so the restaurant had no loan repayments through the rebuilding months.
Know when to get advice
If the business cannot realistically pay its debts as they fall due, more borrowing may not help. Talk to your accountant, and directors should understand their obligations. ASIC has information for directors on insolvency.
Talk about your recovery
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Frequently asked questions
Can I borrow if last year's tax return shows a loss?
Possibly, especially if recent bank statements show improvement and there is a clear reason for the loss. Property security helps significantly.
What evidence of a turnaround do lenders want?
Improving recent deposits, cost cuts already made, new contracts or customers, and tax obligations back under control.
Is turnaround finance the same as insolvency funding?
No. This is finance for a business that is solvent and recovering. If a company may be unable to pay its debts, get professional advice first.
How should the money be used?
Typically to clear tax arrears, consolidate expensive debt, fund working capital as sales recover or invest in what drives the recovery.
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