Finding funding solutions - even for a business with a director in an IVA

We were recently approached by a construction business which was ready to start a small but lucrative contract, extending office premises for a major local business.

The construction sector is highly competitive, and the business had been forced to keep costs to a minimum, and agree to start work without any kind of upfront payment. This meant that they would need to find support for cashflow - paying subcontractors and bringing in materials - for the first month of the project.

This kind of funding is a routine requirement for companies working in the sector - but this business faced a problem - one of the three directors was in an IVA.

The challenge

IVAs - Individual Voluntary Arrangements - are formal agreements designed to help people who have fallen behind on their debt repayments. They allow individuals concerned to renegotiate the terms of their loan with one or more creditors. A creditor is not compelled to accept a request for an IVA - but they will often consider it as a better alternative to an individual declaring bankruptcy, which would mean they would probably receive less of their money back.

An IVA can provide an individual with breathing space to reorganise their finances - but they do come with a serious drawback. Many lenders will see them as a red flag when it comes to lending.

Lenders always look at credit history when considering making a loan. If someone has had problems repaying in the past, they may see it as more likely that they will face problems repaying in the future. So an individual in an IVA will find it difficult or impossible to arrange more lending - at least until their IVA has run its course.

The problem is made worse if the individual with an IVA is a director of a business. His or her personal credit history will be examined, along with the other directors, in addition to the credit records of the business itself.

In the case of our construction business client, the IVA was proving significant enough for most lenders to refuse to lend. 

The business first turned to their bank. However, despite having a long relationship with the company, the bank was unable to help. They then approached a number of online lenders. Although the fact that the business had a contract with a major client was a big plus in their lending criteria, the IVA was still significant enough to mean a refusal.

There were a number of reasons given. Some were unwilling to make any kind of loan to a business in the construction sector, which has been seen as high risk in recent years. Others admitted that they simply were unable to help because of the IVA.

Their next move was to contact a number of brokers. Their initial reactions were positive - but, again, after a few days, when the IVA came to light, they were unable to help. 

It looked as though it would be impossible for the business to raise the funds required to start work on the project - which would mean that they would have no work to do.

Is your business struggling with poor credit? Find out how innovative solutions from Rangewell could help

Turning to Rangewell for help

With time running short, the directors turned to us at Rangewell for help. Our approach is very different from conventional business funding advisors. The main reason is that we are completely independent, and can search the entire business lending market for solutions. Because we know all the lenders in the UK, we know which are able to help when the borrowing needs are less than ideal.

At Rangewell we know that specialist lenders who cater to people and businesses who are credit-impaired exist. Their services are often not advertised, and our network of personal contacts is essential to arrange funding.

We contacted one of these lenders, and explained the position. They were able to look at the client’s other circumstances, and the excellent credit ratings of the other directors, and were prepared to offer £20,000 as a Short-term Loan. The fact that a lucrative contract had been secured was a major factor in overcoming the IVA issues.

The rates required were naturally higher than those that can be offered for a business with a perfect credit record, but the directors agreed the extra costs were affordable - and provided the best way for their business to progress and take on the contract. 

We arranged the loan, which allowed the business to buy in the materials required, and to start work - with the confidence that they would have the cash to pay the subcontractor trades they would be calling in.

Find out more about Short-term Loans for those with an IVA or other adverse credit issues, or simply contact our finance team. From extending Property Development Finance to funding in an emergency or for poor credit, we've got you covered.