For any director, steering a company into a Company Voluntary Arrangement (CVA) is a gut-wrenching decision. It’s a move born from necessity, a lifeline thrown when the waters of insolvency are rising fast. A CVA offers a structured path to repay creditors over time, providing crucial breathing room. Yet, it is not a final destination. The ultimate goal is always to return to regular, profitable trading, free from the constraints and stigma of a formal insolvency procedure.
But how does one make that leap? How does a business, still bearing the scars of financial distress, convince the world—and its creditors—that it’s ready to stand on its own two feet again? The answer often lies in strategic, decisive, and sometimes unconventional financing.
This is the story of how one British manufacturing firm, based here in the North of England, not only navigated the choppy waters of a CVA but charted a course out of it, using a powerful but often misunderstood financial tool: the business bridging loan.
The Precipice: How One Firm Entered a CVA
Our case study concerns a family-run business with a proud 30-year history. Specialising in bespoke steel components for the construction sector, they were a cornerstone of the local economy. However, a perfect storm of a major client going bust, soaring raw material costs, and a fixed-price contract that became unprofitable left their cash flow in tatters.
With HMRC pressure mounting and suppliers demanding payment upfront, the directors were faced with the grim prospect of liquidation. A CVA, proposed by their insolvency practitioner, was the only viable alternative. The arrangement allowed them to ring-fence historical debts and agree to a manageable monthly payment plan, contributing a significant portion of their projected profits to the CVA pot for the next five years.
For the first two years, the plan worked. The business stabilised, retained its workforce, and continued to trade. Yet, the CVA was a constant handbrake. The directors found themselves in a frustrating paradox: they needed to invest in new machinery to become more efficient and win more profitable contracts, but the CVA made securing traditional asset finance impossible. Their bank, which had once been a supportive partner, now viewed them as a high-risk entity. They were surviving, but not thriving. The growth path was blocked.
The Turning Point: Discovering the Bridging Loan Solution
The Managing Director, David, knew that simply treading water for another three years was not a sustainable strategy. The CVA was serving its purpose, but it was also stifling their potential. He began exploring options to end the arrangement early. The total outstanding debt to the CVA pot was approximately £250,000. If they could raise that sum, they could make a 'full and final settlement' offer to their creditors.
An early settlement is often an attractive proposition for creditors. They receive a guaranteed lump sum immediately, rather than risking smaller, staggered payments over several years, which might cease if the company’s fortunes falter again.
The challenge, of course, was raising the £250,000. High street banks were out of the question. This is where the firm’s financial advisor introduced the concept of a bridging loan.
A bridging loan is a short-term form of finance, designed to ‘bridge’ a gap between a pressing financial need and the arrangement of longer-term funding or a future sale of an asset. Unlike traditional loans that involve a lengthy, forensic examination of past credit history, bridging lenders focus more on the exit strategy—how the loan will be repaid.
In the firm's case, the exit strategy was twofold:
- Refinancing: Once the CVA was satisfied and removed from their credit file, the company would be in a much stronger position to secure a traditional, long-term commercial loan or asset finance at a competitive rate.
- Improved Profitability: Freed from CVA payments and with the ability to invest in new equipment, the company’s projected profitability is expected to increase significantly, allowing it to service the new, lower-cost long-term debt comfortably.
Structuring the Deal: How the Bridge Was Built
The bridging broker saw the logic. They weren't just examining the company's past struggles; they were also considering its future potential. They could see a solid business with a healthy order book that the CVA was holding back.
The key asset was the company's factory premises, which held a significant amount of equity. The bridging loan was secured against this property, providing the lender with the necessary comfort.
The terms were straightforward:
- Loan Amount: £265,000 (to cover the £250,000 settlement and associated legal/professional fees).
- Term: 12 months.
- Security: A first charge against the commercial property.
- Exit Plan: To secure a traditional commercial mortgage within 9 months to repay the bridging facility in full.
The process was remarkably swift. From the initial application to the release of funds, it took just under four weeks. This speed was critical. David was able to instruct the insolvency practitioner to present the settlement offer to the creditors, who, seeing the guaranteed funds were in place, voted overwhelmingly to accept it.
Life After the CVA: A Return to Growth
The moment the CVA was formally concluded was a watershed for the company. The psychological weight was lifted from the directors' shoulders, but the commercial benefits were even more tangible.
Within four months, with a clean bill of health, the company approached a challenger bank and successfully secured a 10-year commercial mortgage on their premises. The rate was significantly lower than the bridging loan, and the monthly payments were less than what they had been paying into the CVA. They used this facility to repay the bridging loan in full, eight months ahead of schedule.
Crucially, they also had enough headroom in their new facility to purchase the new machinery they so desperately needed. Productivity soared, they won larger and more lucrative contracts, and within a year of exiting the CVA, they had hired five new staff members. They had not only survived; they had used the crisis as a catalyst for a fundamental and positive change in their business.
Is This Strategy Right for Your Business?
The story of this firm is a powerful example of how bridging finance can be a transformative tool. However, it is not a silver bullet. This strategy requires many key elements to be in place:
- A Viable Underlying Business: The company must be fundamentally sound, with a clear path to profitability once the CVA is removed.
- Sufficient Security: Bridging loans are almost always secured against property or other high-value assets.
- A Cast-Iron Exit Strategy: You must have a clear and realistic plan to repay the bridge.
- Professional Advice: Navigating this process requires expert guidance from insolvency practitioners, commercial finance brokers, and solicitors.
For directors feeling trapped within a CVA, this case study should offer a ray of hope. It demonstrates that with the right advice and the right financial product, a CVA doesn't have to be a five-year sentence. It can be a temporary measure, a stepping stone to a stronger, more profitable future. By thinking strategically and looking beyond the high street, it is possible to bridge the gap from recovery to robust, unfettered growth.
