Budgets cuts are partially responsible for the wave of woes afflicting housing maintenance provider Connaught, which is under increasing pressure from lenders as it could soon breach the terms of its loans.

Connaught Plc is set to breach the terms of its loans and desperately needs more cash, the social housing services company said on Monday as government cuts eat into its livelihood.

The covenant that is believed to have been breached is that net debt must be less than 3x EBITDA, while the company’s debt is set to exceed £200m and it has begun talks about securing additional funding from banks.

An announcement on an agreement with banks could be made within the next week. Despite fears over losing contracts, Connaught's plight is also thought to have been aided by securing a couple of new contracts in the past fortnight.

But the company is also being probed by the Financial Services Authority (FSA) after a director sold shares in the firm before a profit warning last month.

Peter Jones, managing director of Connaught's northern business, made £264,953 by selling shares on 21 May and 23 June, just ahead of an announcement by the group of a shortfall in its revenue. He has since been suspended pending an investigation.

Connaught confirmed that it had received requests for information from the FSA, though the City watchdog has not yet launched a formal investigation of the firm.

The news caused a further two-thirds to be wiped off the group's share price, which has now lost 90% of its value since June's profit warning.