How Fragile Funding Models Trigger Business Collapse
Behind every business success story lies a web of critical decisions, and few are more pivotal than how a company structures its capital.
I’ve worked across a range of businesses with funding models spanning director loans, private equity, bond offerings and, in some cases, bespoke approaches like litigation funding.
With the recent collapse and administration of both Godwin Capital and The Seventy Ninth Group, businesses heavily reliant on loan note offerings, it’s a wake-up call to all business leaders. A single funding method, especially one built on debt, is rarely a sustainable long-term strategy.
I was working at The Seventy Ninth Group during its collapse and witnessed first-hand how a shaky capital foundation doesn’t just slow growth, it can spiral into full-blown crisis.
When Capital Becomes a Liability
Every business dreams of launching with significant seed capital, ideally from personal wealth or a supportive VC partner who brings not just money but patience and perspective. But for many, those doors aren’t open. So companies turn to more accessible alternatives like debt bonds, or more commonly, loan notes.
Let me be clear, loan notes are a perfectly legitimate way to raise capital. But as recent events show, they cannot and should not be your only source of funding. Businesses often stick with what they know. If that method is loan notes, they keep raising capital the same way, until it’s too late to pivot and reduce their risk exposure.
The warning signs are usually there. But when you’re in expansion mode and cash is flowing, it’s easy to ignore the storm clouds. Trouble brews quietly, then arrives all at once.
The Warning Signs of Structural Failure
Debt Overload
Relying too heavily on borrowing without stable, predictable cash flow is a time bomb. One downturn, one reputational hit, and lenders can swoop in demanding repayments, triggering a cash crunch and risking asset seizures.
All Action, No Planning
Many businesses build the plane while flying it, trying to deliver a value proposition before the strategy is fully baked. In this mode, long-term planning, budget discipline and exit strategies get sidelined in favour of short-term cash flow management.
Single Source Dependence
Relying on one form of funding, such as loan notes, leaves a business dangerously exposed. If that channel dries up or the terms change, the entire operation can grind to a halt.
When Crisis Hits: The Domino Effect
Picture this. A business riding high after a record investment quarter decides to double down on growth. Then a regulatory investigation drops. Headlines hit. Investor sentiment collapses overnight.
Projects are still running. Invoices are landing. Payments are due. But now, redemption requests pour in and no new funds are arriving. That’s when the business hits default.
From there, control can be pulled from the leadership team, especially if loan note agreements or secured lending terms allow investors to appoint administrators or liquidators. In the blink of an eye, a thriving business enters freefall.
Lessons From the Rubble
The domino effect moves fast. But even once the first one falls, it doesn’t mean you’re doomed. Some businesses won’t survive, but others can if they act decisively and seek the right support.
The consequences of a poor capital structure go far beyond the balance sheet. Investor trust erodes. Stakeholder relationships fracture. Reputations take a hit. And rebuilding becomes an uphill battle.
But crisis teaches hard, valuable lessons:
Maintain a healthy balance between debt and equity that reflects your business model and risk appetite.
Stress-test your funding strategy against worst-case scenarios, not just the optimistic plan.
Keep communication lines open with stakeholders. Surprises cause panic, transparency builds trust.
Use a mix of funding sources to reduce reliance on one method and increase overall resilience.
From Collapse to Stabilisation
No one sets out to build a business on unstable financial ground. But short-term solutions that work early on often become long-term liabilities if not re-evaluated. Leaders get consumed by the day-to-day and it often takes a crisis to snap that focus back to strategy.
Arx Nova was created for exactly these moments. When the crisis hits and the funding model has been exposed, we help businesses contain the fallout, stabilise operations and reset their course. Even if the first domino has already fallen, there is still time to stop the rest from toppling if decisive, cross-functional action is taken quickly.
The path is clear. Contain the crisis, stabilise the business, then move forward with confidence.
Who’s behind this post?
Chris Johnson
Director & Co-Founder
Chris Johnson is a Chartered Legal Executive and Co-Founder of Arx Nova. He specialises in legal risk, governance, and business restructuring during periods of instability. With over 17 years of experience across the legal and professional services sectors, Chris supports leadership teams to regain control, navigate complexity, and stabilise quickly.
