A turnaround is often a race against time: can the business stabilize before liquidity pressure forces the outcome?
In many distressed situations today, the core issue is not whether the business has a future. It is whether the company has enough time and cash to reach it. Operational fixes take time to implement and even longer to show up in the bank account, while payroll, vendors, and lenders continue to demand cash in real time. That gap, between the pace of operational recovery and the pace of liquidity pressure, is where most turnarounds are won or lost.
The current environment has made that gap harder to manage. Elevated borrowing costs, tighter credit conditions, and increased lender focus on cash flow durability have reduced flexibility for distressed borrowers. Recent data shows that stress is already appearing in parts of the market, with commercial Chapter 11 filings increasing 37% year over year in the first quarter of 2026 and Fitch reporting a 9.2% default rate among U.S. private credit borrowers in 2025.1 2 Looking ahead, refinancing pressure may add to that strain, with roughly $1.2 trillion of leveraged debt expected to mature between 2027 and 2029.³ Together, these factors suggest that weaker borrowers may have fewer easy solutions available when liquidity tightens, making the cash flow gap even more difficult to bridge.
At the company level, this is where the pressure becomes tangible. Consider a manufacturer facing a temporary demand slowdown. Management has identified cost savings, implemented pricing actions, and started discussions with strategic buyers. Operationally, the turnaround may be credible. But if supplier payment terms tighten and liquidity falls below payroll requirements before those improvements reach cash flow, the company can still lose control of the process despite having a viable recovery plan.
The challenge, in other words, is funding the time it takes to get there.
Sell Too Early, and Value Slips
One of the most common friction points in a turnaround is deciding when to launch a sale process.
Owners and sponsors often want to move early to preserve optionality and avoid being forced into a transaction at the point of maximum distress. The instinct is understandable, but buyers see the same situation differently. A business with thin liquidity, strained vendors, or limited visibility introduces execution risk that buyers immediately underwrite into price and structure.
That dynamic often becomes self-reinforcing. A sponsor may believe it is preserving value by launching a process quickly. Buyers may interpret the same urgency as a sign that liquidity could deteriorate before closing. Instead of underwriting enterprise value, they begin underwriting downside protection.
The result is that launching a process at the cash low point frequently narrows the buyer pool and pressures valuation. Buyers shorten diligence timelines, demand more protections, or walk away entirely if they believe conditions may worsen before the transaction closes.
A credible process requires a minimum level of operating stability. Without it, even a fundamentally sound business can appear too risky. This is why building liquidity runway ahead of a sale process can determine whether a company sells from strength or from distress.
Buyers Do Not Need Perfection. They Need Stability
For a sale to succeed in a distressed setting, buyers need confidence that the business can operate normally through the deal timeline.
That does not require a fully repaired business; buyers can work with a business mid-turnaround. What they need is assurance that the situation is under control and that the most acute risks have been contained. In practice, that means:
- A liquidity runway that clearly extends beyond the expected closing date
- Evidence that key suppliers and service providers remain committed
- A credible operating plan that management is actively executing
- Visibility into near-term cash flow, even when longer-term forecasts remain uncertain
Buyers are often willing to acquire a business with declining margins or operational inefficiencies. What they struggle to price is unpredictability.
A company with stable vendors, credible reporting, and several months of liquidity runway can still attract competitive interest during underperformance. A business managing daily cash pressure typically cannot.
Once stakeholders lose confidence in operational stability, the process quickly shifts from a strategic sale to a distressed transaction. The question, then, is how a distressed business actually builds that stability and where the runway comes from.
The First Liquidity Fixes Are Closest to Home
Extending runway in a turnaround rarely comes from a single solution. More often, it comes from several coordinated actions that collectively create breathing room.
- The first layer is internal. Management tightens cash controls, defers non-essential spending, accelerates receivables, and manages inventory more efficiently.
- The second layer is trade credit. Suppliers and service providers may extend payment terms or agree to structured repayment plans, effectively becoming a short-term source of financing while the business stabilizes.
Even relatively modest vendor flexibility can materially change the timeline. Extending supplier payments from 30 to 45 days across a concentrated vendor base may create enough liquidity to complete a refinancing process or avoid a forced asset sale.
But trade support depends heavily on confidence. Vendors extend flexibility when they believe management has a credible plan and stakeholders remain engaged. If communication deteriorates or liquidity appears unstable, support can disappear quickly. In many turnarounds, a single critical supplier moving to cash-on-delivery can undo weeks of progress almost immediately.
Internal discipline and vendor support can buy a business weeks, sometimes months. Past that point, the business usually needs its lender.
When the Lender Becomes the Bridge
In many turnarounds, lender support ultimately determines whether the business has enough time to recover.
To extend that runway, incremental facilities, including super-priority and similar structures, have become increasingly common as financing conditions have tightened. Through 2025, lenders and sponsors leaned heavily on amend-and-extend transactions and change-of-control deals, often deploying new money to bridge the gap between a cash low point and a defined strategic outcome4.
These decisions are highly negotiated and tied to very specific objectives, even when they look like a simple capital injection. One common structure is a secured over-formula advance (SOFA) line, under which the lender temporarily permits the company to borrow above its normal borrowing limit to get through a low cash point. Such facilities are typically used to extend runway while the business works through a turnaround, refinancing, or sale.
A lender may not believe the business is fully repaired, but it may still support a short-term liquidity bridge if it improves the probability of value preservation. Bridging a company through a 90-day sale process, for example, may produce a materially better outcome than forcing a transaction during a liquidity crisis.
When evaluating incremental funding, lenders tend to focus on three issues:
- Whether the use of proceeds is clearly defined
- Whether the capital structure appropriately protects the new money
- Whether management, sponsors, and stakeholders remain aligned around the process
When those conditions exist, lenders often engage constructively. When they do not, lenders move quickly to protect their downside.
Confidence Changes Behavior
Vendor support and lender support rarely operate independently. Each tends to reinforce the other.
When lenders commit additional capital, it signals confidence in the business and its path forward. That signal encourages vendors to continue supplying on flexible terms, which stabilizes operations and reduces execution risk. Greater operational stability, in turn, makes lenders more comfortable maintaining support. The business becomes more predictable, improving its ability to reach a refinancing, sale, or broader turnaround outcome.
This reinforcing cycle is often what carries a business from immediate liquidity pressure to a more stable, manageable position.
Why Alignment Matters
Alignment shows up in how quickly stakeholders move and support the process. Lenders extend deadlines or commit capital for a defined purpose. Vendors agree to payment plans that keep the business running. Sponsors stay engaged and continue to support the company.
Speed is the other signal. When stakeholders are aligned, decisions are made quickly and the business can respond in real time. When they are not, even routine decisions stall, consuming the very time and cash the turnaround cannot spare. That speed often decides the outcome. Turnarounds rarely fail for lack of a solution; they fail because time runs out.
But buying time only works with a credible path behind it. Repeat defaulters have recently accounted for a growing share of corporate defaults, reaching the highest level since 2019, as many companies that extended their runway eventually found themselves back in distress5.
Closing Perspective
Turnarounds are frequently framed as operational challenges, and operational improvement is unquestionably central. But in today’s market, they are equally about managing liquidity and aligning stakeholders.
The ability to preserve value depends on whether the business can create enough time to move from pressure to a managed position. That time has to be built through internal discipline, vendor cooperation, and lender support, all organized around a plan everyone can believe in. That is what separates a managed transition from a forced outcome.
At Harney Partners, we advise companies, lenders, and stakeholders through complex turnaround and restructuring situations, helping build the cash buffer, stakeholder coordination, and execution framework needed to preserve value.
