Small businesses may have thought they had been thrown a financial lifeline, with the launch of the £80billion Funding for Lending scheme by the Bank of England and the Treasury back in July 2012. Aimed at solving the country’s small business and mortgage lending crisis, it enabled banks to borrow an unlimited amount of money for as little as 0.25% as long as they maintained, or increased, their lending.
Despite this availability of loans, independent research by the Federation of Small Businesses (FSB) showed that, in fact, loan refusals actually rose to around 42%, scuppering any chance for business expansion. This was despite half of the 2,600 respondents wanting to grow their businesses in the coming year.
While the Funding for Lending scheme may have failed, there is an alternative way for small businesses to raise finance while contributing to a pension scheme – the LoanBack.
LoanBanks enable you to borrow 50% of your pension pot
There are many thousands of small businesses in the UK in need of a financial boost, making the market for LoanBacks huge. In the current economic climate, the ability to borrow money from one’s pension scheme is an attractive option. The problem is that many businesses have not structured their pensions in a way that allows this.
LoanBacks can be an ideal solution for small businesses, whether for expansion through purchase of new plant and machinery, or an injection of funds into a capital project. If, for example, four directors of a small business have pension funds worth £100,000 each they can pool those pension funds and borrow up to 50%, creating £200,000 to invest in their business. Furthermore, this puts them in control of the line of credit, removing their reliance on the banks. After all, why borrow and pay interest to a bank when it can be paid into the directors’ own pension fund?
There are rules and regulations to follow and there can be significant tax penalties if these rules are not adhered to. As always, it is advisable to seek out a competent and experienced pension specialist.
The banking credit crunch may be with us for a while and if your business could benefit from this type of funding you need to ensure you have the right type of pension arrangement in place.
Ray Best can help you protect your financial future. To find out more, simply click here!