Entrepreneurship can transform your financial future, but how do you deal with debt from your past? One of the most commonly asked questions about starting your own business is whether you can do so if you have an IVA.
An IVA, which stands for Individual Voluntary Arrangement, is a government supported way of dealing with debt, where you pay off a small percentage of it (monthly, according to what you can afford), and the rest gets written off after five years. `An IVA can rescue you from bankruptcy, protect your assets and get rid of your debt for good (if you’re looking for more information, IVA Advice offers free, qualified information on debt and IVAs).
While starting a business if you have an IVA is more difficult than if you had a totally debt-free past, it is definitely possible, and much easier to do so than if you had been made bankrupt.
We’ll look at all the issues you might face while trying to start a business with an IVA, and how to manage them.
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Can you start a business if you have an IVA?
You can start a business either as a sole trader or the director of a limited company if you have an IVA, but you will need to prove that your business makes enough income to cover your payments.
You may find it more difficult to get approved for a business bank account and loan and for necessary coverage, such as Public Liability Insurance.
In this article, we’ll cover the details of starting your own business and opening a business bank account if you have an IVA, your chances of getting approved for a business loan, and how you can get accepted for Public Liability Insurance with poor credit.
Starting your own business with an IVA
Self-employment
You can absolutely run your own business as a sole trader if you have an IVA. However, if you are starting a new business as a sole trader, it may be best to delay your application for an IVA until you gather enough evidence that your business is trading enough to support your income requirements, including your IVA payments.
IVAs were initially designed with businesses and the self-employed in mind. If you are self-employed, your income is more likely to vary from month to month, and self-employed IVAs are set up to either increase or reduce your monthly payments depending on how your business fluctuates. You must communicate all changes with your Insolvency Practitioner (IP) so that they know when to adjust your payments. You will also have to prepare a cash-flow statement so that your IP can predict how much your income changes each month.
If you set up business as a sole trader during an IVA, you will need to prove that your income will generate enough business for the agreed IVA payments. As well as your cash flow statement, you will need to provide business accounts and your personal tax returns as proof. If you have already started an IVA and are thinking about leaving your current employment to start a new business as a sole trader, it may be difficult to provide the evidence for your IP that your business can support your income requirements. You should always communicate with your IP before making any changes to your employment and financial affairs, including starting your own business as a sole trader, as they can advise you on what is possible in your personal circumstances.
If you are self-employed and in an IVA, and you are in debt through a business account, you might be able to keep the account to help you cope with the running costs of your business, rather than having your credit compromised by an IVA. However, if the business account is very overdrawn, you should probably include it in your IVA agreement.
If you are self-employed and you owe money to HMRC, for example, to the inland revenue, you can include these debts in your IVA.
Starting a Limited Company
If you have a limited company bank account, this shouldn’t be affected if you start an IVA, as you and the company are separate in legal terms. However, if you are an owner director and your personal and company accounts are at the same bank, this could cause difficulties. This is because, if you include debt in your IVA that relates to your personal bank, the company account will be notified, which may mean that credit lines or credit facilities for your business accounts are withdrawn.
Similarly to working as a sole trader, if you have a limited company and an IVA, you will need to prove to your IP that you have enough income to cover your payments. It may be difficult to start a limited company while you have an IVA, if the limited company is your only source of income, as it may not have generated enough business to prove that you can meet your IVA payments. As always, check with your IP before making any changes to your employment and financial affairs, as the most important thing is not to jeopardise your IVA – it’s much harder to start a business if you’ve been made bankrupt.
Opening a business bank account with an IVA
While there is nothing in theory to stop you from starting your own business with an IVA, providing you can afford the IVA payments, whether you get approved for a business bank account can make or break your business dreams. If you are a sole trader with very basic transactions and activity, you might be able to run your business through your personal bank account. However, if you want to do decent trade and expand, you will need a business account.
The problem
Many high-street and online banks require the director of the business to pass a credit check before they will approve them for a business account. If you are currently in an IVA, this will affect your credit rating for the duration of the agreement, and lead to rejection for a business account. However, all is not lost – we’ve done our research and put together a list of solutions for getting a business bank account with an IVA.
Solutions
Online business bank accounts with no credit checks
If you are finding it hard to get approved for a traditional business account at a high street bank, we have found some great digital alternatives. These accounts are fast to open and have many of the features of a traditional business bank accounts. The best thing is, that they don’t involve credit checks, which means you should be accepted for any of these accounts.
Cashplus Business Account
- Near 100% acceptance rates and no credit checks
- Send and receive cash in your business name
- Online banking and Mastercard debit facilities
- 1% cashback on business expenditure
- Send and receive bank transfers and pay in cash for free
- Set up Direct Debits and Standing Orders for free
- The account will be in your business’ name
- Register the account for Merchant Services & with HMRC
- Moving towards becoming a fully fledged bank: an easier route in to getting full business account
Acorn Account
- Guaranteed acceptance and no credit checks
- Ideal for undischarged bankrupts or those in an IVA
- Send and receive cash in your business name
- Deposit cheques for free via Post Office and Barclays branches, unlike CardPlus.
- Accepts international payments
The CardOne Money alternative business account
- No credit checks
- Send and receive cash in your business name
- Deposit cheques into your bank account, unlike with Cashplus
- Easily accept international payments via online banking, electronically or as cheques.
If you are still keen to get a traditional business bank account, there are a few that are designed for people with a poor credit history. They include:
To maximise your chances of getting accepted for a traditional business bank account, you should:
- Prepare a strong business plan, so you can show the bank that your business will be viable
- Get on the electoral roll at your current address
- Register with HMRC, as some banks will check this (you should do this within three months of trading, anyway)
Getting a business loan with an IVA
Obviously, many businesses couldn’t get started without loans, but having an IVA does reduce your credit score and your ability to get approved for a loan. Firstly, you need to get permission from your Insolvency Practitioner (IP), if you are applying for credit of over £500.
If you do need to take out a loan for your business, the people who will lend to you (lenders who specialise in providing credit to people with debt and a poor credit history), are likely to offer higher interest rates, which could get you in more trouble, just as you are getting through your IVA. If you can, it may be better to wait until you have completed your IVA and your credit rating improves to start your business.
While you are unlikely to get a loan from your bank, it may be an option for you to get business credit from a credit union. These are non-for-profit organisations, where members put together their savings and resources and provide low-interest loans for their members. You must be a member of a credit union to be eligible for a loan, and you must have a business venture in keeping with the union’s common interests or concerns.
Find a credit union here.
Public Liability Insurance
Public Liability Insurance is a really important insurance policy for any business that deals with the public. If one of your clients, for example, has an accident on the premises of your business, Public Liability Insurance would cover the legal fees and compensation claims made against your business. Having an IVA might make it difficult to get Public Liability Insurance, as some insurance companies won’t offer it for the duration of an IVA, or for five years after you it’s discharged. Insurance companies like Simply Business mostly offer Public Liability Insurance if you have an IVA, but the insurance rates might cost more than if you didn’t have any impact on your credit history.
Now that we’ve covered all the things you need to consider when starting a business with an IVA, from getting approved for a business bank account to getting insurance, we hope it’s been a helpful read. Businesses can be a fantastic way of transforming your future, no matter what debt you have faced in the past, so as long as you stick to the terms of your IVA, don’t take out loans that you can’t afford to repay and keep up with your IVA payments, this could be an amazing fresh start.
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