I have now watched the same film more than once from the business rescue practitioner’s chair.A company in visible financial distress needs bridging funding. A lender appears, fast, digital and frictionless. The money arrives quickly. But there is little meaningful due diligence, no proper interrogation of the management accounts, no assessment of what caused the distress, no view on whether the funding solves the problem or merely postpones failure, and no hard look at whether the business can carry the repayments.The pricing is eye-watering because speed is the product. The security is often not the business at all. It is a personal suretyship from the director, sometimes the shareholder, and often both. The lender then disappears from the rescue story until the company fails. At that point it reappears, not at the creditors’ meeting where the rescue is being fought but at the door of the director’s family home.Call it what it is: blind capital. The lender never underwrote the business; it underwrote the surety.Most people assume the National Credit Act polices this. It does not do so adequately. If the borrower is a company or close corporation the protections are limited. Large corporate loans often fall outside the act, and even if a juristic person falls within parts of the act the overindebtedness and reckless-credit protections generally do not apply.That leaves a real gap. There may be no affordability assessment, no reckless-lending consequence and no meaningful pricing discipline. If the principal debt is outside the act the natural person who signs surety for that corporate debt may find that the protection assumed to exist is not there in any practical sense. The one brake left standing is often the common in duplum rule, which limits arrear interest. Everything else becomes contract.Our courts, correctly applying the law as it stands, will often enforce that contract. The business rescue moratorium generally protects the company, not automatically the surety. And the compromise or discharge of the company’s debt in business rescue does not necessarily release the surety. That depends on the deed of suretyship and the wording of the adopted plan. The director who signed may therefore stand exactly where the lender always intended: alone. Now look at the other side of the transaction. The director who causes a company to incur debt if there is no reasonable prospect of paying it risks personal liability for reckless trading. Section 22 of the Companies Act prohibits reckless trading while section 77 creates potential director liability. In a winding-up, section 424 of the old act reaches any person who was knowingly a party to the reckless or fraudulent carrying on of the business. Our law, rightly, holds the borrower’s mind to account. But the financier who advanced money into that same distress at penalty pricing without asking a single hard question may face nothing. It was priced for failure, secured itself against a private individual and outsourced the downside.One party carries statutory personal liability. The other carries a signed suretyship and a collections department. That should trouble us.There is also an uncomfortable footnote for the funding industry. Section 424 is not confined to directors. A financier that knowingly funds the continued trading of a hopeless business on terms that are only sustainable if the business is being run recklessly may be closer to that line than the market appreciates.Our law, rightly, holds the borrower’s mind to account. But the financier who advanced money into that same distress at penalty pricing without asking a single hard question may face nothing. It was priced for failure, secured itself against a private individual and outsourced the downside.Blind lending is not merely unpriced risk. It may one day be pleaded. This is not an argument against distress finance. Companies in trouble need funding more than anyone. Chapter 6 recognises that. Postcommencement finance exists because informed rescue funding can preserve businesses, jobs, value and tax revenue. But that is the difference between informed capital and blind capital. Informed capital does the work. It reads the management accounts and cash flow forecasts. It asks what caused the distress. It asks whether the funding fixes the cause or merely postpones the funeral at interest. It understands the rescue plan, the ranking of claims and the practical route to repayment.It takes monitoring rights and information covenants, not because it wants to run the company but because it expects to be paid by the business rather than by the director’s house. Blind capital prices ignorance and then charges that ignorance to someone else’s family.The following changes would fix the incentives without closing the tap:Extend appropriate affordability and reckless-lending duties to credit advanced to small juristic persons, especially if the company is financially distressed.Create a statutory duty of inquiry when lending to a financially distressed company. A lender that advances money into known or reasonably knowable distress without reasonable due diligence should face consequences, including possible subordination of its claim in a later business rescue or liquidation, and the unenforceability or partial unenforceability of director and shareholder suretyships taken as the price of blind money.Align the incentives with chapter 6. Funding that engages the rescue on an informed basis should keep and strengthen its statutory preference. Funding that never looked should not be able to convert its own negligence into a mortgage over somebody’s home.Due diligence is not red tape. It is the minimum price of admission for lending to a business in trouble. It is the thing that separates finance from risk transfer. If you want the returns of distress lending, do the work of distress lending.• Thompson is a CA and business rescue practitioner.