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 higher chance of success. There are several 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 similarly 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.
What if the business debt has become too much to deal with?
If your business’ debt has reached such a level that there’s little chance it can realistically recover, there are insolvency options to help you deal with the debt and close the company, while providing some return to your creditors.
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, which allows you to bring all unsecured creditor debts together, gradually paying them off in monthly amounts, over the course of the procedure. For sole traders, you can efficiently consolidate your business debt via an IVA.
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.
Consolidate business debt
A CVA is the most efficient way to consolidate your business debt while allowing trade to continue trading for the duration. You’ll stay in control of the business too. Alternatively, restructuring might be a more suitable solution for your business; in which case, you could explore administration as an option.
Consolidate personal debt
The equivalent of a CVA for sole traders and individuals is an IVA. Like its company equivalent, an IVA allows you to repay your debts in monthly instalments over five years. After those five years, all remaining debt is written off, allowing you to make a fresh start.