ONE factor in the current tough business climate is that small enterprises seeking funds for expansion are still finding it difficult to obtain bank funding.

A potential solution to this could be for them to adopt a Small Self-Administered Scheme (SSAS), a registered pension scheme usually established by limited companies to provide retirement benefits to key staff.

Such schemes are ideal for small businesses as the usual SSAS membership is between two and four and cannot be more than 12.

Crucially, an SSAS allows the sponsoring employer to borrow up to 50 per cent of its net asset value for use in developing the business in a loanback facility.

This means that limited company directors wanting to take advantage of an opportunity to expand could set up an SSAS and transfer funds into it from existing pension funds held elsewhere.

To fund growth, they could then borrow up to 50 per cent of the total accumulated fund and release the cash they require.

Another benefit is that capital and interest repayments from the business would not go to an external lender, but be paid back into the SSAS to help fund members’ retirement benefits.

However, HM Revenue and Customs applies strict rules to loanbacks. These include that capital and interest must be paid back in even installments during the term of the loan, which cannot exceed five years and that the rate of interest must be at least one per cent above base.

Under the terms of a loanback, the SSAS must secure first charge over land or property of adequate value, owned by the employer and/or people connected to them, in case of a repayment default.

In practice, this means commercial land or buildings.

Residential property or machinery are no longer an option.

If your business is considering setting up an SSAS, there are several points to bear in mind to ensure that it is appropriate. Firstly, you should seek professional advice.

Harry O’Connor, Wealth Management Consultant, Pearson Jones plc, Bank Chambers, 9 Kensington, Cockton Hill Road, Bishop Auckland, County Durham, DL14 6HX Tel: 01388-458919.