If you need a business loan, pension-led funding offers an alternative way to access funds without involving external lending providers or investors. Pension-led funding is a form of working capital finance that enables companies to borrow funds from a company director’s personal pension, which are then paid back with interest. As a form of alternative finance, it is not the most common but it could offer your business a host of benefits.
Pension led funding enables your business to access funds from the existing personal pension of a company director. There are a number of lending options available to businesses looking to utilise this form of finance.
The most straightforward is a commercial loan, which enables businesses to borrow up to half the value of the pension fund. This form of lending can be used if you have access to a small self-administered scheme (SSAS). In this instance, you would not be able to access funds from a self-invested personal pension (SIPP).
Self-invested personal pension holders (SIPP holders) have more freedom with how their pension is invested and it can be used to fund a variety of business activities. A range of options exist and an unlisted share investment, for example, could release up to 70% of the pension value to fund a business project. Self-investment personal pension holders can also invest their pension in commercial property or land.
Another alternative form of pension-led funding is the sale of intangible assets to a pension fund, which is then leased back to the business. This activity is known as an intellectual property sale and leaseback and involves the sale of assets such as patents, copyrights and trademarks held by the company. Tangible assets, including property, land and equipment, cannot be used as security against this type of arrangement.
An intellectual property sale, otherwise referred to as an IP sale, involves the transfer of ownership of the intangible assets to the pension holder’s fund. The company then leases back the right to use the assets for their day-to-day business activities. On retirement, the pension holder may choose to sell the assets back to the company or continue to lease them as a form of additional income.
Essentially, pension led funding gives UK business owners and directors more control over their finances without having to rely on external investors. Other, more traditional forms of lending often require personal guarantees, such as the family home, to be used as security against the loan but this is not required with this type of finance.
In the case of an intellectual property sale, the company will not have to offer tangible assets as security against a loan. This allows the business to continue operating as usual without risking key equipment or operating premises.
Of course, there are benefits for the pension holder as well. As the funds come from a company director’s pension fund, the pension holder and business can decide how the arrangement will work. Investing in a business comes with an element of risk but if the business grows, the value of the assets will inevitably increase. Therefore on retirement, the pension holder could reap significant benefits from the investment.
To find out if you qualify for pension-led funding, please complete our online application and a specialist pension-led funding provider will be in touch to discuss the way forward.
As this funding is a form of investment for the pension holder, the eligibility criteria will require the business to demonstrate an excellent trading history and a strong potential for continued growth. A pension fund of more than £50,000 is needed for this form of alternative finance to be arranged.
As with any type of business finance, it is crucial to make sure you are choosing the right product for your business needs. One of our pension funding partners will discuss and review your current financial position with you and offer you a free, no-obligation quote.
If pension-led funding does not suit your business needs, there are many other options available to you. We can find the right financial product for you from a host of alternative lending providers. View our range of alternative business finance here.