Alternative Finance – Pension-Led Funding

What is Pension-Led Funding?

Mainly allows SME owners/directors to use their accumulated pension funds in order to invest in their own businesses. Intellectual properties are often used as collateral.

Pension led funding is now a £25 million market.

Pension–led funding (PLF) offers SME owners and directors the opportunity to re–channel, and re–invest their pension funds back into their own ventures and companies mostly as working or expansion capital through SIPP or SASS instruments.13 PLF has supplied more than £25 million of finance to SMEs in 2014. Analysis of data from PLF providers show that the average amount raised through PLF is £70,257.

Pension Led Funding is used primarily by small mature businesses

Seventy–four businesses responded to our survey of PLF users. The businesses seeking PLF came from a range of sectors with retail, construction, technology and manufacturing among the most prevalent. They are almost entirely small businesses. Seven per cent were sole traders with 60 per cent having five or fewer employees. Though small, many are not young. Almost half have been trading for more than 10 years with just eight per cent trading for less than three years. Three–quarters had begun using PLF in the last three years.

Users of PLF believed it was easier to access funds through the model than through traditional financing channels. They also value being able to utilise their pension funds (an ‘important’ or ‘very important’ factor in choosing PLF for 66 per cent of respondents) and having more control over their finances (73 per cent). More than half had approached a bank for funding before securing funds through PLF, with less than a third of those receiving an offer of funding from the bank.

When asked how they found out about PLF, the most common responses were professional advisor (40 per cent) and offline advertising (35 per cent). Whilst some respondents found it difficult to find the PLF provider (11 per cent) and to transfer their existing pension across (13 per cent), in general, most of the survey respondents found that PLF was easy to use.

Sixty–two per cent of businesses have seen their profit grow after securing finance through PLF

Just over half of the businesses surveyed believed it would have been ‘unlikely’ or ‘very unlikely’ that they would have secured the funds they needed from other sources, had they been unable to use PLF. Since obtaining funding, 62 per cent have seen their profit grow, 59 per cent have increased turnover and 43 per cent have employed more people. Other reported impacts since securing PLF include improved cash flow (53 per cent) and the launching of a new product or service (47 per cent). Respondents’ view of PLF was generally positive. 81 per cent say they would be ‘likely’ or ‘very likely’ to recommend PLF to a business they know. 79 per cent are ‘likely’ or ‘very likely’ to approach PLF for funds in the future with 66 per cent inclined to do so, even if a bank offered funds on similar terms.