When a business starts missing covenants, burning cash, or falling behind on debt service, many owners assume the real problem is the loan balance itself. In practice, the bigger issue is often leverage in the conversation with the lender. A workout is rarely just about asking for more time. It is about credibility, information, timing, collateral, and whether the lender believes the business is still manageable.
That distinction matters in today’s credit environment. The Federal Reserve’s July 2025 Senior Loan Officer Opinion Survey found that banks still reported tighter-than-midpoint standards for several commercial and industrial loan categories, including loans to small and very small firms, even though standards had eased somewhat from the year before (Federal Reserve). In other words, many businesses are still negotiating with lenders that remain cautious.
In this post, you’ll learn the seven workout mistakes that often reduce borrower leverage before negotiations really begin, why those mistakes matter, and what business owners and finance teams often try to do differently when the goal is to preserve options. If you want broader background on the restructuring tools themselves, it may help to start with this overview of out-of-court restructuring options and lender accommodations.
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A workout is usually a negotiation around distress without an immediate bankruptcy filing. It can involve temporary payment relief, maturity extensions, covenant resets, collateral discussions, reporting requirements, forbearance terms, or a more comprehensive restructuring. Federal banking regulators have said banks may work “prudently and constructively” with creditworthy borrowers experiencing financial stress, and the 2023 interagency policy statement specifically discusses accommodations such as deferred payments, partial payments, and other relief (FDIC).
That does not mean every lender will be flexible, or that every borrower arrives with equal negotiating power.
Leverage in a workout often comes from a few practical facts:
Lose those advantages, and the conversation may shift from “Can this be fixed?” to “How quickly can the lender enforce its rights?” Under Article 9 of the Uniform Commercial Code, a secured party may, after default, enforce rights against collateral and may dispose of collateral in a commercially reasonable manner (Cornell Law School, UCC 9-601; Cornell Law School, UCC 9-610).
That is why timing and preparation often shape the workout as much as the debt terms do.
The first major mistake is waiting too long to engage.