Alternative Sources of Business Finance

With banks showing contunued reluctance to provide borrowings to small busineses funding new projects, buying new plant or machinery or even simply restructuring the finances of a business has become more difficult. However what business owners often overlook is that there are other sources available to them.

These include the use of personal savings and investments as well as using some of the equity that they may have in their form to take a further advance on their mortgage. However there is a further source that is often overlooked which is available to the owners of limited companies.

Limited company owners are able set up a type of pension scheme which can make loans to the company or buy property, including the trading premises of the business if they are already owned by the company or its owner. Whatever people may think of pensions, most people have accumulated funds over their working lives, perhaps built up during previous employments. These are often dispersed amongst a range of policies with different insurance companies.

These funds can be brought together into a single arrangement which can then be used to do a number of things. It can make a loan to the company at a minimum interest rate of 1% over base (somewhat better than rates generally available from banks). This needs to be secured with a first charge over assets held by the company, which can include its book of debitors (unpaid customer invoices). If the company owns its trading premises the fund can buy the building thereby releasing cash which can be used to restructure the business finances and perhaps get rid of the overdraft.

Alternatively the pension can buy new trading premises for the business for which the business would pay rent at a commercial rate, which goes into the fund.

These schemes are extremely versatile. However, they are not without their pitfalls and it is important that advice is taken from an experienced pension consultant.