Business Finance During a CVA

A CVA is a formal insolvency procedure under Part 1 of the Insolvency Act 1986. It lets an insolvent limited company agree a legally binding repayment plan with its unsecured creditors while continuing to trade under its existing directors. It must be approved by creditors representing at least 75% by value of those who vote, and must not be opposed by more than 50% by value of unconnected creditors. A licensed insolvency practitioner acts as supervisor. Terms typically run for three to five years.

Yes. A CVA does not prohibit a company from borrowing, and it does not stop it trading. What changes is the range of lenders available. High street banks and most mainstream unsecured lenders will decline a company in a formal insolvency procedure, so funding usually comes from specialist lenders who underwrite distressed and turnaround situations and who take security over an asset rather than relying on credit score alone.

Usually, yes. Most CVA proposals contain terms restricting new borrowing, or the granting of new security over company assets, without the supervisor’s consent. Check your approved proposal and speak to your supervisor before you apply. In practice this is rarely an obstacle: a supervisor whose priority is the CVA completing will often support funding that stabilises cashflow or protects the contributions.

It is unlikely. Unsecured lending is priced on credit profile and a live CVA is recorded at Companies House and picked up by the credit reference agencies. Realistic options are secured against a debtor book, plant and machinery, vehicles, stock, commercial or investment property, or a director’s own property or based on card takings through a merchant cash advance.

Yes, sometimes. Where a company can raise a lump sum, it can propose a variation to the CVA offering creditors a full and final settlement in place of the remaining monthly contributions. This is put to creditors through the supervisor and needs the same 75% approval as the original proposal. HMRC’s standard modifications commonly prevent a variation within the first 12 months. Early completion removes the monthly contribution, ends the arrangement and strengthens the balance sheet but it depends entirely on creditors agreeing and sufficient lending being available.

Yes. The arrangement is filed at Companies House and the supervisor reports to creditors and Companies House annually, so credit reference agencies pick it up. Expect the company credit rating to be affected during the CVA and for a period after it completes. This is why lenders in this space underwrite the asset and the current trading position rather than the score.

A company CVA is a corporate procedure, so it does not by itself appear on a director’s personal credit file, and directors keep control of the business throughout. Personal exposure comes from personal guarantees. Where a director has guaranteed a debt caught by the CVA, the guarantee is not compromised by it, and most specialist lenders will expect personal guarantees on new facilities.

There is no set limit. In a CVA the amount available is driven by the value of the security offered rather than by turnover or profitability, because the lender is underwriting recovery from the asset. A business with a substantial debtor book, valuable machinery or equity in property can often raise materially more than its accounts alone would support.

It helps considerably. A record of contributions paid on time evidences that the business is trading to the plan, which is the single point specialist lenders scrutinize most. Arrears do not automatically rule out an application, but they raise the risk of termination, and lenders will want to understand the cause and what has changed.

It depends on the facility. With factoring the funder runs the sales ledger and chases payment, so the arrangement is disclosed to your customers. With invoice discounting you keep credit control and the facility is usually confidential, so customers continue to pay you as normal. Not every lender will offer confidential discounting to a company in a CVA.

Yes, and the options widen. On successful completion the compromised pre-CVA debts are extinguished, and the company can trade with a clean liability position. The arrangement stays visible on the company’s record for a period afterwards, so specialist lenders are still likely to be involved in the short term, but pricing and structure typically improve as trading history builds post-completion.

On most facilities, no. For invoice finance, asset finance, merchant cash advances and stock or trade finance we are paid commission by the lender, so there is no cost to you for our work. Where the funding is secured on property like a secured business loan, commercial mortgage or bridging facility, then we charge £495 on application and 1% of the amount borrowed on completion. Any fee is set out in writing before you apply, and we do not charge more because a company is in a CVA.

It depends on how the business is structured, because an IVA is a personal insolvency procedure rather than a company one like a CVA. If you trade through a limited company, the company’s borrowing sits separately from your own IVA and the company can still apply. It will restrict options but if the underlying business is sound and/or there is security available, then there may still be business finance options available. If you trade as a sole trader or in a partnership, the borrowing is personal borrowing and we cannot assist (we can only introduce non-regulated, business-purpose lending).