As traditional bank funding continues to be scarce for UK SMEs, Intellectual Property (IP) based pension-led funding is set to deliver a vital alternative funding boost, according to specialist commercial finance brokerage Embark Finance.
“IP-based pension-led business funding and strategies are a realistic, but little-known, source of alternative finance for businesses, especially SMEs,” explains Richard Keenan, Director of Lutterworth-based Embark.
“However, the vast majority of financial decision makers within SMEs appear unaware of this source of business funding, despite it delivering access to an advantageous source of finance, by unlocking the value in their IP Rights, with no Personal Guarantees involved.”
According to a recent survey by Clifton Asset Management Plc, more than 70 percent of UK SME owners are unaware of pension-led business funding. “Pension-led business funding means financing comes directly through the owners’ pension funds,” says Richard. “Dependent on current pension values, it is estimated this could account for an injection of £100bn back into the UK’s SME economy.”
Under the Finance Act 2004, directors are able to utilise their own company’s IP to access extra cash. “This works by using the director’s pension fund to buy the IP directly from the company, or uses it as security for a loan by the pension fund to the company,” explains Mike Bailey, co-Director at Embark. “Commonly, IP is any intangible asset that consists of human knowledge and ideas including copyrights, trademarks, patents and software.
“Historically, IP is rarely used to maximum effect, but it is an asset for the business that carries with it some intrinsic financial benefits, particularly tax benefits. Pension-led business finance is a realistic alternative to the traditional finance routes, and as a business asset, IP can be used in this way to deliver a cash injection, or as collateral on a loan against the pension. SMEs can really cash in on their IP in this way.”
Mike feels that better use of intangible assets such as IP to support lending is essential if a recovery based on growth and innovation is to succeed: “For many SMEs, especially those considered still ‘young’, securing finance from banks, even with onerous security and personal guarantees, is tough. Utilising both IP and the company’s pension fund, with the appropriate level of relevant advice and due diligence, could be a financial saviour for the small business.”
Embark Finance is approved by Clifton Asset Management Plc and its pension-led business finance product Optimise.