Understanding the pros and cons of IVA
If your business is struggling with debt, you may be considering a business Individual Voluntary Agreement (IVA) to help you regain control of your finances and turn your business around. A business IVA is usually recommended for sole traders and partnerships, while limited companies would use a Company Voluntary Agreement (CVA).
As a tool to save your business, an IVA comes with both advantages and disadvantages. It’s vital that you understand these before you make any decisions. It’s also important to seek professional advice to ensure you’re choosing the right path for your circumstances.
In this article, we explore what a business IVA is and the pros and cons of setting one up to help you decide if a business IVA is right for your business.
What is a business IVA?
A business IVA is a formal agreement between your business and your creditors to repay your debt over a fixed period of time, usually five years. Monthly payments are set on what the business can afford without pushing it into further financial difficulty.
The arrangement is typically set up and managed by a licensed Insolvency Practitioner, such as Bridge Newland. Once approved by creditors, the agreement is legally binding.
What are the pros of a business IVA?
When a business is facing financial pressures, a business IVA can provide stability during a stressful and worrying time. Some of the pros of a business IVA include:
- The business can continue to trade: You can run your business while clearing your debts, which can help you turn your struggling business around and also help you retain staff and customers.
- Affordable monthly payments: Payments are set at a level the business can afford. This helps protect cash flow and ensures you can still meet your daily operating costs.
- You’re protected from creditor action: Once approved, creditors in the IVA cannot take legal action against you or add interest to your debt. This helps prevent court proceedings.
- Debt may be written off: Any unsecured debt left at the end of the IVA is written off, meaning you do not have to pay it. This occurs only after the agreement has completed its full term.
What are the cons of a business IVA?
While there are many advantages and benefits of a business IVA, it’s crucial that you look at both sides, so you’re aware of any disadvantages. The Cons of a business IVA include:
- Needs creditor approval: Some creditors may not approve the agreement; for it to proceed, at least 75 per cent must approve. If approval isn’t granted, then other insolvency options will need to be considered.
- Will need to be disciplined with payments: You must stick to the agreed monthly payments. Missed payments will put the arrangement at risk.
- Supply regular financial reviews: You must provide accurate accounts and forecasts at certain intervals during the agreement. This can add pressure and stress for business owners.
- Risk of failure: If you are unable to keep up the payments, the IVA could fail and could result in the closure of your business and bankruptcy for a sole trader.
Are you looking for business IVA advice?
If you’re facing financial troubles, it’s always best to seek professional advice as early as possible. If you would like to discuss your circumstances, we’re always happy to help. Contact us on 0800 612 6197, and our experts will provide you with bespoke advice and suggestions tailored to suit your individual circumstances.
Categorised in: Insolvency Reviews & Advice
