The persistent refusal by the banks to fulfil their role in an enterprise economy by lending money to businesses means that many companies, especially owner-managed SMEs, are starved of the liquidity they need if they are to grow and created badly needed jobs.
Not so long ago, the former chairman of HSBC, Lord Green, admitted that the high street banks had developed an all-denying “the computer says no” attitude to small businesses.
In fact the volume of bank lending to SMEs has shrunk by an estimated £150 billion since 2008. Think how much economic growth that money could have stimulated had it been available.
In such a negative climate it does not matter how well a company’s bank manager knows the business and its owners, how familiar he might be with its credit history, or how good a use it would make of a loan to finance new machinery, develop new products or move into new markets.
If the loan application does not meet the arbitrary criteria fed into the bank’s computer, the loan will not be forthcoming.
It is this lack of liquidity that is not only choking off growth in many businesses, but also sending many of them to the wall.
Fortunately, however, that need not be the end of the story. There is a way of unlocking cash in many cases.
Where directors have accumulated personal pension funds, those funds can be converted into a Small Self-Administered Pension Scheme, or an SSAS and the money invested in a range of approved vehicles – including the directors’ own businesses.
It goes without saying though that unlocking cash from pensions in this way should only be undertaken after obtaining expert and unbiased financial advice.
As an example, two clients of The Whitehall Partnership are directors of a small engineering company who were turned down by their bank after asking for a modest £200,000 to finance a major deal with an overseas customer.
Despite the fact that even in the midst of the longest and deepest downturn since World War Two their company had remained profitable, the bank refused the loan.
But we were able to show them how to gain access to the cash built up in their pension funds in order to finance their expansion plans.
In this way they were able to take personal charge of their funding requirements and haven’t looked back since.
It must not be assumed, however, that SSAS’s are simply sources of easy money. They are not.
In order to unlock cash from their pensions, the directors concerned had to meet all the criteria that a bank would impose, including putting up adequate security and proving that any loan from the pension funds was on strictly commercial terms.
One essential difference was that the interest accruing on the loan flowed back into the directors’ pension funds, not the bank.
Business owners looking to unlock cash from the pensions should do so only after taking advice from an independent financial advisor with an advanced qualification in pensions.
If you have a business and would be interested in learning more about the benefits of an SSAS, or any other form of financial advice, contact The Whitehall Partnership on 0845 43 49 250 today.