Pension-led funding for small businesses – could it work for you?

Following Britain’s decision to leave the EU, it’s fair to say there’s been a pretty major impact on uncertainty amongst businesses, even if a relatively benign economic impact to date.Pension Led Funding
 
It means that, added to the mix of higher costs, weak domestic growth and lacklustre consumer demand – optimism has been dampened among many British small businesses. (The Federation of Small Businesses said confidence among members fell to a four-year low in the last quarter of 2017).
 
This macroeconomic backdrop is very much influencing business owner decisions concerning both how they fund their businesses development – and indeed how their business might fund exit planning and retirement. 
 
In terms of business capital, SME’s and start-up businesses have been forced to look at alternative finance options to grow their business. Peer to peer lending such as crowd funding has been one of the most publicised, however other options do exist.
 
One that has been perhaps overlooked a little is ‘Pension-Led’ funding. Essentially, this is about making your pension work harder, through business owners borrowing funds from an existing pension and investing these into their company.

 
Business owners will first need to move their retirement funds into a self-invested pension (Sipp) or a small self-administered scheme (Ssas) – the most flexible types of personal pension which can fund either a commercial loan from the pension scheme to the business, or the purchase of intellectual property, if valued above £50,000.
 
In essence, you’re taking the risk on yourself rather than convincing a bank that your business is worth taking a chance on.
 
There’s often a great deal of misunderstanding that surrounds the relationship between an SME owner and their pension. Far from being ‘tied up’, assets in any accumulated pension can be aggregated together and used to provide what can be a highly effective form of business finance.
 
There’s plenty of unique opportunities and risks to navigate within this theme though, so it’s important you and your professional advisers take a holistic approach..
 
However, deploying the pension fund into the business to drive greater profit, then repaying the pension pot with significant interest (thereby reducing the Corporation tax bill) can drive up the value of both the business and the pension. An effective way of potentially quite considerably improving the chances of a financially secure retirement…

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