Allison Chambers, Director at SSAS Solutions, discusses the use of the loan-back facility from a Small Self-Administered Pension scheme (SSAS) to the scheme sponsoring employer.
Allison says; “some recession hit Ulster firms are dipping into their pension pots to bail out their struggling businesses. The strict lending criterion introduced by the banks is forcing an increasing number of ailing companies to draw on retirement funds to keep their businesses afloat. However, many firms still don’t know that this valuable option exists”. Allison explains below how her firm, SSAS Solutions, helped a leading construction company who had fallen on difficult times when their bank withdrew support because of the large reduction in land values.
“the construction company had just over one third of the properties on one of their sites agreed for sale but no cash to build the homes. The Company Directors had £605,000 between them in different pension arrangements. In conjunction with their financial advisor, we set up a SSAS for the Limited Company and the Directors became members and transferred their existing pensions into the new SSAS bank account. The pension fund was able to lend 50% of the scheme’s assets (i.e. £300,000 in cash) back to the Limited Company. This loan was arranged on commercial terms at an interest rate of bank base plus 4%. Security for the loan was provided by assets owned personally by the Directors. The cash allowed the firm to build the houses that were already agreed for sale. The remaining £300,000 of cash held within the pension fund bank account was used to purchase part of the company’s existing land bank which, although earmarked for residential development, was not going to be developed at this stage, because of the economic climate. This meant the company received a further cash injection of £300,000 from the sale of the land to the pension fund which enabled them to pay off some of their existing bank borrowings, taking some pressure off the company and greatly improving the banking relationship”.