IP-led pension-based funding

The vast majority of financial decision makers within SMEs are not aware of a source of business funding that could put them back in control of their financing, while reducing loan risk: pension-led funding.

With this type of business funding, finance comes directly through the owners’ pension funds – this could inject several billions of pounds back into the UK’s SME economy.

Many business owners are unaware that the vast majority of business assets reside in Intellectual Property (IP) – this is one of the most valuable and least exploited assets found in businesses.

In April 2012, a government report from the UK’s Intellectual Property Office opened with the statement: “Achieving strong, sustainable and balanced economic growth is the government’s economic policy priority and IP is an increasingly important means of supporting growth.”

This type of business funding requires a close examination of company accounts, track record, business plan and funding structure to determine the value of its IP. Once an IP valuation is received, the pension fund can agree to purchase and leaseback some (or all) of the IP value from the business. Once the cash transfer has been completed, there is usually a monthly lease payment between the business and the pension fund, which is a tax deductible item.

Pension-led business funding is funding by the directors for the directors, as no right-minded business owner would sabotage their own, successful business.

When running a business, you will inevitably be faced with general elements of risk. Pension-led business funding involves ‘controlled risk’ – the pension scheme is protected from external creditors, so in the event of the company defaulting, the pension scheme may suffer a loss, but this loss is almost always less than the amount of money paid by the pension fund for the IP.

This is undoubtably a more favorable risk than that of conventional third party funding methods where not only would the Directors be liable to pay back the borrowing, but also may be forced to realize this through the assets used to secure that borrowing – in some cases a family home!

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