There are many things to think about as a director, and it can become quite overwhelming when you keep hearing phrases with no explanation of what they mean. In this blog, we’re answering the question, what does IBR mean?
IBR meaning
IBR stands for Independent Business Review. These reviews are initiated by banks when there is a risk of financial problems. When it comes to business, these financial problems can be known as becoming insolvent.
An insolvent business is one that cannot afford to pay its debts when they fall due or its liabilities are worth more than its assets.
It’s worth remembering that sometimes your business may just be waiting for a large payment from a client. In this case, it’s unlikely that your business is actually insolvent. However, it’s important to manage your finances well, and ideally, you wouldn’t need to wait for a client’s payment to settle your debts.
If you believe that your business is in financial distress, it’s important that you seek professional advice as soon as possible.
Failing to seek advice early will only make the situation worse. It could lead to increased director scrutiny and even compulsory liquidation. This type of liquidation is always best avoided if possible.
By seeking advice early, you are acting within your director’s responsibilities, which will reflect positively on you if you later enter a creditors’ voluntary liquidation (CVL).
What happens during an IBR?
As we mentioned previously, the bank will initiate an Independent Business Review. The process usually begins with a phone call from the bank to the director. The aim of the phone call is to inform the director that the business is going to be reviewed.
This process aims to establish what’s needed for the lender to secure or recover the money they are owed. This will usually be achieved by establishing new security measures for the lender. Some companies are also placed into Receivership during this process.
Why do banks initiate IBRs?
It’s not uncommon for businesses to have bank loans, but there are strict guidelines that must be followed when it comes to payment plans. If the bank suspects that your business may not be keeping up with the payment plan of your loan, they may initiate an IBR.
Other reasons can include cash flow problems or failure to provide financial evidence to the bank. If you are worried about your financial situation, you need to seek advice and let the bank know. It’s much better to be honest about your situation than to bury your head in the sand.
What’s included in an IBR?
- History of your money borrowing
- What security is included in the loan
- Information on the money collected by the company
- The company’s current financial position
- Whether or not the company has provided the lender with up-to-date financial information and documents
What kind of security may be expected by the lender?
An IBR is used when a lender is trying to ensure security for the money they have lent a company. A lender may request various types of security from a company.
Personal guarantees
Personal guarantees are used by lenders to ensure the safety of their money. This type of security means that a director will be responsible for paying back the money if the company cannot.
These guarantees should not be taken lightly, and they are unlikely to be cancelled by the lender.
Adjust financial plans
The bank may also suggest that the financial plans are revisited. Directors will be expected to provide financial reports so the lender can assess your financial situation over time.
Encourage payment collection
Lenders may introduce invoice discounting which can help to encourage directors to collect the money they are owed via invoices. This can help directors ensure a consistent cash flow within the business.
Business review & investigation
In some cases, a full business review may be required. This would include requesting information on cash flow projections, profits, trading history and more.
This can result in company restructuring, which may lead to the company being saved or closed using a formal insolvency process. Further investigations may be necessary for this.
How long does an IBR take?
There is no set time frame for an IBR, as it all depends on your circumstances. Some take just a few days, whereas others can take months.
An IBR may seem daunting to a company director, but it doesn’t need to be. Directors can actually benefit from this process, as it helps to solidify their relationship with the lender and allows them to become more aware of their business’s financial situation.
Have you been contacted about an IBR and need some advice? At 1st Business Rescue, we’re here to provide you with expert advice regarding your business situation. Don’t hesitate to contact us for professional advice.
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