How can I consolidate my business debt?

If your business runs into cash flow difficulties, whether it is because of a bad debt, an unprofitable contract or a general slowdown in business, you will need to look into the options to deal with it and hopefully turn the business around in the process. One option is to do this by consolidating your business debt, making creditor payments easier and giving your business a greater chance of success. There are a number of methods available to help you do this depending on the legal structure of your business and the surrounding circumstances.

What are the options available?

Dependent on your business’ situation, there are a number of options which can be beneficial when you are looking to consolidate your business’ debt. They are:

Company voluntary arrangement (CVA) – This procedure allows limited companies to consolidate their unsecured debts, repay them over the CVA term (usually five years) and continue to trade. It is a rescue device for insolvent companies and if creditors agree to the terms of the CVA it can be a great way to ensure a company stays open and operating. It also provides the directors with the time and security to look into restructuring and diversifying their offerings to become more successful in future.
Individual voluntary arrangement (IVA) – An IVA works in a similar way to a CVA but it is designed for personal and sole trader debts. Again, it allows individuals to consolidate their unsecured debts (business and personal), repaying what they can afford over five years and continue to trade with their business. This can be an extremely beneficial procedure for sole traders as they are personally liable for any business debts and IVAs can place a protective arm around the business to continue trading without fear of legal action.
Partnership voluntary arrangement (PVA) – Again a similar process as outlined above but concerns partnership debts. An individual partner may simultaneously have an IVA for a personal debt.
Refinancing – This is where all business debts are consolidated into one debt or where various debts are restructured with a view to making repayments more affordable. It can allow a business to find a more favourable rate and focus on one repayment rather than multiple ones. Refinancing can also provide directors with the opportunity to renegotiate the terms of their debts, to lengthen or shorten the term, dependent on the business’ needs. This can help a business to deal with their cash flow and the debts that they have much better. However, the business will need to be able to afford repayments and lenders may refuse to lend to a business in some situations.
Invoice finance – if you run a B2B business, this is a great way of funding cash flow shortages caused by business growth. There are a number of products suited to a variety of business situations.

Are there any other options available for dealing with business debt?

There are a couple of other insolvency options that can help you deal with business debt which may be more suitable for your business’ current situation. Although these procedures can effectively write off your company’s debt, it is important that you take advice to identify which is best suited to your situation.

Administration – This is a process for insolvent companies which can provide them with protection from their creditors whilst a plan is put together to help restructure the company or sell the business and assets as a going concern. Administration allows a business to carry on trading after restructuring or sell the business to new owners or previous shareholders via a pre-pack administration.
Creditors voluntary liquidation (CVL) – The process of a CVL involves selling all company assets and closing a company which is no longer viable. All debts that are not paid off from asset sales during the process will be written off and then the company ceases to exist. There may be an opportunity to purchase assets at market value from the liquidator enabling you to continue trading the business through a phoenix company.

In Summary

When your company is struggling to manage its debt, it can often seem as though nothing will go right. However, it is key to tackle the issues head on and look at ways of managing debt, whether that is supplier debt, day-to-day operational costs or servicing structured debt. There are several rescue procedures which allow you to ease creditor pressure, but these can only be utilised if the business is genuinely viable. For Limited companies, the most efficient form of consolidating business debt is through the form of a CVA. This allows you to bring all unsecured creditor debts together, gradually paying them off in monthly amounts, over the course of the procedure.

How we can help

If you are struggling to manage business debt and are worried about pressure from creditors, then get in touch with one of our experienced advisors as soon as possible. We can help talk you through the most suitable options for your business and the most effective ways of consolidating your business debt.

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Lisa Hogg

Director & Licensed Insolvency Practitioner

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