Business Loans with IVA
If you’re considering exploring an IVA or you already have one, you might be wondering what that means for your future business lending needs. Here we’re exploring what an IVA is, the process, and what kind of business finance you can still qualify for.
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- What is an IVA?
- Does an IVA affect my business?
- Can I get a business loan with an IVA?
- What’s the IVA process?
- Differences between an IVA and a CVA
- Business loans with IVA
- How to get a loan with an IVA
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What is an IVA?
An individual voluntary arrangement (IVA) is a legally binding agreement for sole traders and individuals to help them repay a smaller portion of the debt they owe to their creditors. These arrangements usually stipulate that payment is made over a specified time period (up to six years, but can be longer).
Does an IVA affect my business?
With an IVA, you can still operate your sole trader business as usual. If you have business assets, you can usually keep hold of them, but you may be asked to downsize if applicable. The point of an IVA is that you avoid insolvency and are able to continue trading if your business is viable, while repaying a smaller portion of the debt you owe.
Unlike with bankruptcy, you can still be a company director with an IVA in place.
Can I get a business loan with an IVA?
If you have an IVA, you can still apply for a business loan. When the lender runs a credit check, they’ll see your IVA as it stays on your credit report for six years. That means having the IVA will impact your credit score, giving you bad credit, and therefore your ability to get a business loan, but that doesn’t mean it’s impossible.
Alternative finance providers are more flexible with lending criteria than traditional banks are. That means you’re more likely to find a lender that is willing to lend to business owners with poor credit. Your options will be more limited as you’re deemed a high-risk borrower.
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What’s the IVA process?
There are five steps in the IVA process:
1. Assess eligibility
The insolvency practitioner has to check you’re eligible for an IVA. They do this by analysing your income, debts, and assets to check you can afford the IVA repayments.
2. Prepare the proposal
After assessing what you can comfortably afford to repay, the IP creates a repayment plan proposal. The proposal includes details, including the reason for applying for an IVA, a detailed income and expenditure analysis, your and your company’s details, a list of both your creditors and debts, what you propose repayment-wise, and proposed terms.
3. Submit the proposal
Once the proposal is finished, the IP sends it to your creditors and arranges a formal creditors’ meeting. In this meeting, creditors vote if they’re happy to accept the arrangement outlined in the proposal. If 75% of the creditors (by debt value) agree to the proposal, then it becomes a legally binding agreement for all creditors (even the ones who voted against the proposal).
4. Make supervised payments
You’ll make monthly payments as outlined in the arrangement. The payments go into an IVA fund, which is overseen by the IP. The IP then sends your payments to the creditors. The IP will review your income each year to ensure that payments are still on track. If your financial circumstances do change, they can suggest amends to the arrangement, if creditors consent.
5. Write the debt off
Once you fulfil the repayment schedule, all unpaid qualifying debts will be written off. You then have a fresh financial slate.
Differences between an IVA and a CVA
The main difference between an IVA and a CVA is one is for individuals and sole traders (IVA), and the other, a company voluntary arrangement, is for limited companies. They’re both legally binding arrangements, with an insolvency practitioner overseeing the entire process, and both set up repayment terms for the creditor and manage payments.
Business loans with IVA
So, what types of business loans can you get with an IVA? Here are a few options.
Secured business loan
Your best bet when securing finance with an IVA is by applying for a secured loan. That’s because lenders aren’t as focused on credit score with a secured loan as the loan is secured with collateral, usually commercial property or vehicles. Then, should you miss a repayment, the lender can seize the asset, sell it, and recoup their money.
Invoice finance
Invoice finance is a great option if you have an IVA because you’re only borrowing against the unpaid customer invoice, i.e. the lender will get their money back. This financing option can be good to maintain healthy cash flow, particularly because once you’re set up with the factoring or discounting company, fund transfer can be almost immediate.
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Merchant cash advance
If you process a minimum of £2,500 a month in card sales, you could be eligible for a merchant cash advance. You could apply for up to £500,000, and because the lender bases repayment on future card sales, they’re not too focused on credit score. Repayment is a percentage of your card sales, and the money is automatically repaid to the lender each month.
Asset finance
You can use asset finance to purchase or lease assets, with your new asset becoming security on the finance. This means, should you default on repayments, the lender will seize and sell the asset to recoup funds. It can be a good option if you have an IVA and you don’t want the financial outlay of purchasing an asset outright.
How to get a loan with an IVA
You can use our free small business loan comparison tool to find and compare eligible loan options in one place. Our tool is free and available 24/7, so you can search in your own time.
Simply share some details, including loan amount, ideal repayment period, what you need the finance for, etc. And our self-serve tool will show you UK lenders and their relevant products.
Getting a free quote won’t affect your credit score, and you’re under no obligation to accept any quote shown to you.
Ready to start your loan application journey? Find and compare business loans.
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Adrian T
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