Using a SSAS loan-back to assist a company’s expansion plans

Introduction

Employer loan-backs are the unique feature of a Small Self-Administered Scheme (SSAS).

Rightly subject to stringent conditions governing - amongst other things - the amount of the loan, the rate of interest, type of security and repayment term, a SSAS is permitted to lend money to its sponsoring employer to assist with its growth plans.

As the following case study serves to illustrate, SSAS loan-backs continue to offer an alternative source of finance for businesses, and an attractive investment for the SSAS member trustees.

Situation

A. I. Robotics Limited is a relatively new company with three founding directors; Steve, Bill and Mark.

The three founders enjoyed successful employed careers prior to establishing A. I. Robotics Limited, and as part of this, each has accrued significant pension funds.

A. I. Robotics Limited is now at a stage in its development where a fresh injection of capital is required.  Unfortunately, as the company has only been trading for 18 months, the directors are experiencing difficulty in sourcing finance from high street lenders.

Solution

Steve, Bill and Mark establish a SSAS with Barnett Waddingham, where each of them is a member trustee.

Their financial adviser recommends that it is appropriate for each of them to transfer their previously-accrued pension funds into the SSAS.

Once the transfers-in have been completed, a loan-back of 50% of the total amount is effected from the SSAS to A. I. Robotics Limited, for an annual interest rate of 4.5% with the company’s premises, (which is jointly owned by Steve, Bill and Mark), acting as security for the loan.

Benefits

For the company

This provides A. I. Robotics Limited with the ‘wherewithal’ to fund their expansion plans.

For the SSAS

The five-year loan provides the SSAS member trustees with an attractive investment that offers a rate of return significantly in excess of that currently available from cash deposits.