Pension Led Funding

Whether you have been working for a company or having your own company, you may have accumulated a variety of pensions throughout your working life.


This could be Occupational or Private pensions. Business owners can sometimes be frustrated by the lack of performance of their pension funds and their inflexibility to use them productively.


Did you know that these funds can help finance your business?


In a recent survey, 73% of SMEs were unaware of Pension-led funding as a method of raising capital. 4 out of 10 SMEs are refused banking facilities.


As a business owner, there is always a need to maintain working capital, market the existing business or even expand  upon it, while retaining maximum control of the business for yourself. Traditional lending, such as bank loans, hand control to the lender, while also requiring personal guarantees from the business owner, which could even be your home.


Pension Led Funding offers a new alternative that involves a business owner's accrued pension, held within the director's pension scheme, allowing them to back their own company by financing their own business out of their own pension.


Before choosing Pension Led Funding, please consider the following:


There are 2 main Pension Led Funding vehicles, which are Small Self Administered Schemes (SSAS) and Self Invested Personal Pensions (SIPP).


For the franchisors the main funding options are - a commercial loan from the pension scheme to the sponsoring limited company, or perhaps the purchase of the company's Intellectual Property by the scheme. For the franchisees, funding is similar, however the valuation of the business is primarily through the value of preference shares, which then requires a ltd company, and are an entirely separate class from the ordinary shares you might be more familiar with. 


If you are considering a SSAS loan for your business, there are some regulatory requirements.


The loan must not exceed 50% of the pension fund's NAV (Net Asset Value). It is best to be secured via a first charge against an asset of equal or greater value to the loan capital, plus interest over the period of the loan. The maximum term available is 5 years. An interest rate of at least 1% higher than the Bank Of England base rate should be applied. The loan must be repaid with equal instalments of capital and interest throughout the term.


Pension Led Funding requires no personal guarantees or business charges. The security of a director's personal assets will no longer rely on how good or bad the franchise does.


If balance sheet assets are used to secure a loan, the pension can create its own charge over all the assets, so that the pension scheme becomes a preferential creditor to the business. Meaning that in the worst case scenario of a business failing, the scheme has priority in claiming back its security, however that level of priority will depend on the status of any other creditors that might hold a secured charge on the business's assets, for example a bank.

If you would like to discuss Pension Led Funding with a Lender, please click on the button below.

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