Creditors, Control, and Why Borrowing Changes the Mood in the Room

The first sign that borrowing has changed a business rarely looks dramatic.

It doesn’t look like a crisis.
It looks like a meeting that runs ten minutes longer than planned.
A decision that’s still a good idea – but suddenly needs running past more people, a follow-up call, and “a bit more thinking”.

The numbers are fine. The business is trading and the lights are still on. Everyone insists this is just sensible financing – a practical bit of housekeeping to keep things moving.

And for a while, that’s true.

But borrowing has a habit of doing more than advertised.

Once a proper chunk of debt enters the picture, something shifts. Not with a bang, but quietly – through process, tone, and the growing sense that decisions now need to pass a comfort test before they move. You don’t need a crisis for this to happen. You just need debt to be part of the picture.

That’s the moment borrowing stops being “just the funding side of things” and starts changing how power actually works.

Ownership Is Simple. Control Is Not.

On paper, ownership is meant to be simple.

Shareholders own the company. They appoint the board, sign off the big decisions, and set the long-term direction. That’s the version everyone learns first, and it’s comforting because it feels tidy and decisive.

Creditors, on the other hand, don’t own anything.  They don’t vote. They don’t approve strategy, and they don’t turn up to AGMs to ask awkward questions. They lend money under contract and expect to be paid back.

If you stop there, it’s easy to believe ownership and control are the same thing – that the people who own the shares are the people who ultimately call the shots.

In practice, they aren’t.

Once borrowing enters the mix, control stops being so simple. Lenders bring rights with them, and those rights don’t exist to sit quietly in a drawer gathering dust. They’re there for the day when things stop going exactly to plan – which, in business, they eventually always do.

That’s why loan agreements have a habit of becoming more relevant faster than expected. Clauses that once felt remote start turning up in conversations. Decisions that used to be waved through now come with a bit more explaining.

No one announces a change of control. The same people are still around the table. But the balance has changed, and everyone can feel it.

Why Borrowing Comes With Strings Attached

The reason for this isn’t complicated – it’s structural.

Lenders face a slightly awkward problem. Their upside is capped from the start – interest, their money back, and that’s usually where the story ends. If the business does brilliantly, they don’t share in the celebration. Their return was agreed on day one.

The downside, though, is very real. If things go wrong, lenders can lose money, and while insolvency law is supposed to protect them, that protection often arrives after the damage has already been done.

Lenders don’t wait for things to break before paying attention. They build protection into the borrowing itself, in the form of limits, checks, and early warning signs that any changes in risk show up well before anyone is talking about distress.

Covenants as a Form of Conditional Control

Covenants have a scarier reputation than they are.

They sound technical, faintly threatening, and like something best left to “the finance team”. The sort of thing that lives in a spreadsheet and only really matters if someone sends a slightly panicked email on a Friday afternoon.

Day-to-day, they don’t change very much when things are going well. If the business is comfortably hitting its numbers, management has room to manoeuvre and decisions move quickly. There’s an unspoken assumption that things are under control.

But, as performance weakens, that assumption starts to crack. Cash movements attract more attention. Plans take longer to sign off, and what was once routine now comes with questions.

This isn’t punishment. It’s control that was always conditional becoming more visible as risk increases. And when a covenant is breached, it rarely triggers collapse. More often, it opens a conversation – a quiet renegotiation of who gets a say, and when.

Why Some Creditors Matter More Than Others

Not all creditors are equal.

Some lenders are backing the business as a whole and trusting it to keep paying its way. Others have tied their money to specific assets or cashflows – the parts of the business that actually generate value.

Once that kind of borrowing is in place, freedom starts to change. Selling assets, reorganising operations, or raising new funding doesn’t stop being possible – it just comes with conversations attached.

Ownership hasn’t changed. But control over key assets begins to feel shared, particularly as performance weakens and the margin for error shrinks.

There’s nothing unusual about this. It’s what happens when lending is backed by assets rather than goodwill.

Why Boards Start Behaving Differently Under Leverage

Boards don’t suddenly change personality because a company has borrowed money.

The same directors turn up. The agenda looks familiar and the strategy still sounds broadly the same – what changes is how decisions feel.

When the business is comfortably solvent, directors can focus on growth with relatively little tension. As that comfort thins, decisions start to feel heavier. Risk appetite tightens. Expansion gets postponed. Cash is treated with more respect.

The Last Word

A company can look perfectly healthy from the outside – profitable, busy, confidently trading – while already operating within limits set by its borrowing. Customers are still paying. There’s no obvious reason to worry.

And yet, the range of choices has narrowed.

Borrowing brings money in, but it also brings constraints with it. Those constraints sit in contracts, are enforceable if needed, and are designed to matter more as conditions become less forgiving. They don’t have to be invoked to shape behaviour. Just knowing they exist is often enough.

That’s why control can feel as though it disappears at exactly the moment flexibility would be most useful. In reality, nothing has vanished. The room to manoeuvre has been shrinking for some time – long before anyone thought to call it stress.

Borrowing rarely changes who’s in charge overnight. What it does instead is rearrange the furniture slowly, until one day you realise the room doesn’t quite work the way it used to.

In part two, we’ll look at what happens when that realisation can no longer be ignored – when pressure builds, options narrow, and control stops being a theoretical question.