When Individual Voluntary Arrangements (IVAs) were first set up, they were actually designed with the interests of business owners in mind. Indeed, the 1986 Insolvency Act actually introduced IVAs as a method for company directors to deal with their debts.

Nowadays, IVAs are perhaps more associated with personal insolvency issues. However, they are still incredibly relevant to both existing business owners and people who are looking to start up a limited company. 

What is an IVA?

Before we look into whether having an IVA could disqualify you from setting up a new business, it is essential to explain what the process entails. In simple terms, an IVA is a formal and legally-binding arrangement that is negotiated with creditors to pay off unsecured debts like credit cards, overdrafts and loans. Compliance is absolutely crucial, so the agreement should only be entered into if the debtor believes they can keep up with the required payments. If not, other methods such as bankruptcy should be considered. 

IVAs can also be used to cover other debts, such as tax arrears and benefit overpayments – however they are not suitable for items such as car loans, hire purchase agreements or mortgages. Acceptance is by no means guaranteed, so it is essential to check the eligibility criteria beforehand. For more information about how IVAs work, please read our blog post on the matter.  

Effect on Credit History 

Another important point to consider is the effect an IVA can have on your credit history. Entering into such an agreement will appear on your credit report and cause your score to go down. Lenders may then view you as a high-risk customer, meaning you could find it a lot more difficult to obtain credit. You will also be obliged to seek written approval from your licensed insolvency practitioner to get a loan of more than £500 – unless it is for essential items such as water and gas payments.

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Entering into an IVA also has long-term implications, as it remains on your credit file for a period of six years. Once everything has been completed, your insolvency practitioner will issue a certification to the insolvency services – which will in turn notify the credit agencies. 

Your credit score will then slowly start to improve as time passes. This is because lenders and agencies alike will only usually check your recent history. Therefore, any previous issues that are several months or years old should not be taken into account. Your credit report should also improve greatly once you come out the other side of an IVA. 

Can I Set Up a Limited Company with an IVA?

If you have already set up an IVA, whether it’s due to previous issues with running a business or something entirely different, you may be wondering whether you are able to start afresh with a new limited company. The good news is that this is entirely possible, however some care and consideration will be needed.

Much like somebody who has been through the liquidation process, an individual who has applied for an IVA is perfectly able to set up a new business and achieve a bright future. That being said, it is not without its risks.

For example, you might find it difficult to obtain credit from lenders and even a business bank account if you are midway through an IVA – or even if you have just completed one. This may be less of an issue if you keep your business and personal banking operations with separate financial institutions, however this is by no means guaranteed. 

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The rationale behind this is that banks will see that your personal finances have been in a state of disarray and be concerned that they could put themselves at risk by lending your company money. Even if you manage to find a financial institution that is willing to do business with you, this may be done on the proviso that you are charged a higher level of interest than you otherwise would have been. You may also be required to offer a personal guarantee on your loan, which would see you become personally responsible for the debts if something should go wrong further down the line.  

As with most things in business, the timing of your actions is crucial. It may therefore be a good idea to wait until your IVA has been completed or even a few months after before considering setting up a limited company. This will give you the best possible chance of obtaining business banking services without any unwanted hassle. While starting a new enterprise straight away is by no means impossible, you may find that you are making things more difficult for yourself than you need to.

Expert Advice is Essential 

If you are considering setting up a limited company with an IVA, or any form of employment change, it is important to seek out professional and independent advice at your earliest possible opportunity. By talking to an expert, you can build a clear picture of your current situation and make well-informed decisions.

This is where Inquesta can help. We have amassed decades of experience in helping company directors and individuals gain a thorough understanding of their finances and suggest what we believe is the best possible for them. We are dedicated to providing our clients with the highest level of service possible and ensure that no stone is left unturned in our efforts to assist. This gives you the peace of mind you need that you are working with someone who has your best interests at heart. 

We understand that there is no one-size-fits-all solution to financial difficulties. This is why we will spend time to gain a thorough understanding of your individual circumstances before coming up with a solution. We will also give you the time you need to digest this information and make an informed decision, and then provide expert support whenever we are required. 

For more information about how Inquesta can help you gain a better understanding of your current situation, book a free consultation or contact a member of our team today.