It’s common practice for business owners to take out borrowing to use in their business.

But did you know that if your pension is a small self-administered scheme (SSAS), you may be able to benefit by borrowing money from your pension and using it directly in your business?

This is known as a “loan-back” and there are plenty of reasons to consider this for your business.

Remember: you can only borrow money from an SSAS pension, not from a self-invested personal pension (SIPP).

Improve cash flow

Firstly, an SSAS loan-back can provide invaluable capital to help your cash flow in the short term.

During the Covid-19 pandemic, many business owners sought ways to provide an injection of cash into the business. In that time, SSAS loan-backs became a popular method to do so, allowing business owners to give their cash flow a quick boost in a tricky environment.

There may well have been plenty of other times during your business ownership when you wish you could have boosted your cash flow, too. An SSAS loan-back can allow you to do exactly that.

Help towards large purchases in your business

If you need to make a single large purchase in your business, perhaps on machinery or on hiring new staff, an SSAS loan-back can be an effective way to fund it.

This loan is typically quicker to access than a bank loan, meaning you’ll be able to get your hands on what you need sooner than you might otherwise.

More favourable than a bank loan

Crucially, borrowing money from your pension may allow you to design more favourable terms for the business than you might be able to find with a bank loan.

An SSAS will generally require less underwriting, meaning you’re able to access your funds in your business sooner than you might be able to when borrowing from a bank or building society.

Similarly, as you’re making the loan from the pension, you can decide on an interest rate. So, while you may want to set an interest rate that ensures your pension funds continue to grow at the same rate as they would have when invested, it may still be lower than the rate that a bank offers you.

Important rules to bear in mind

There are a few key rules to bear in mind when borrowing money from your SSAS for your business:

  • You can only borrow up to 50% of the SSAS’s net asset value
  • The minimum payable interest rate must be 1% above the base rate, rounded up to the nearest 0.25%
  • The maximum term of the loan must be five years
  • It must be a repayment loan, not an interest-only loan
  • The loan must be used for legitimate purposes, and cannot be used to help a company that will otherwise collapse.

Make sure you follow these rules before you make a loan to your business.

Want to find out more?

If you’d like to find out even more ways that your pension can boost your business, read our guide with four more tips for using your retirement pot to improve your company.

Download your free guide right here.

Alternatively, please email hello@cordinerwealth.co.uk or call 0113 262 1242 to speak to us.

Please note

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.