What should a borrower do in the first two weeks?
Establish the facts before the lender does. A thirteen-week cash flow built from source data, an honest covenant calculation, and a clear account of what caused the break and whether it is temporary are the materials every subsequent conversation runs on. Lenders act on the gap between what they are told and what they later find; a borrower whose numbers hold is negotiating, and one whose numbers slip is being managed.
Then open the conversation before the default notice forces it. A breach disclosed by the borrower with a plan attached is a different event from the same breach discovered in a compliance certificate. The counterintuitive rule of workouts is that early candour buys options and silence spends them, because the lender's remedies grow with time while the borrower's alternatives shrink with it.
What a breach formally triggers, and what lenders actually do with those rights in practice, is covered in the linked positions below.
What is on the workout menu with the incumbent lender?
Four instruments, in escalating order. A waiver forgives a specific breach for a fee and often a margin bump. A forbearance agreement holds remedies in abeyance for a defined period while the borrower executes a plan, on terms that typically tighten reporting and add conditions. An amendment resets the covenants or the schedule to a level the business can meet, repricing the facility to match. And new money, from the incumbent or a third party, funds the turnaround itself.
Each step up the menu costs more and binds tighter, and each is priced off the borrower's alternatives at the moment of asking. This is why timing dominates the economics: 30% to 40% of direct lending deals maturing in the next two years have already extended once (Lincoln International, 11 February 2026), and lenders facing that queue distinguish sharply between borrowers who arrive with a plan and time, and borrowers who arrive with neither.
In the lower middle market, the recurring price of meaningful relief is structural: lower pro-forma leverage, junior or equity conversion of part of the debt, or new equity as a condition precedent (SPP Capital Partners, as compiled in our second-extension position). Relief that improves the lender's position gets granted; relief that merely defers it gets priced like the risk it is.
What does rescue capital cost, and who provides it?
Rescue financing is new money into a stressed credit, and it prices as the risk it takes: a coupon well above performing-market levels, structured with a cash portion plus payment-in-kind, and usually an equity component in warrants. The provider's question is not whether the business was good but whether the new dollar is protected, which is why rescue lenders negotiate hard for priority, collateral, and control rights that a performing-market lender would never ask for.
Three classes provide it. The incumbent lender, defending its existing exposure, is often the cheapest source and the most conflicted. A new third-party lender prices without legacy attachment but requires the diligence a stressed timetable strains. And where a sponsor stands behind the business, sponsor support is frequently the condition on which everyone else's participation turns. Debtor-in-possession financing is the court-supervised variant of the same trade, with priority granted by statute rather than negotiation.
The honest arithmetic for the borrower: rescue capital is expensive enough that it only makes sense funding a plan that changes the outcome. New money that funds losses without changing the trajectory converts a workout into a larger insolvency, later. Whether the plan clears that bar is the first question we test, and we say so when it does not.