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=Pension-led funding= Pension-led funding (PLF) is a form of business finance, recognised and approved by HM Revenue and Customs (HMRC)[Link to appropriate HMRC document]. It uses pension benefits held within a director-owned pension scheme to provide working capital to the director’s own limited company.

PLF is a form of alternative lending, which also includes crowdsourcing and peer-to-peer lending, as a way of sourcing finance either in conjunction with, or as an alternative to, loans from traditional financial institutions. Although open to limited companies of any size, pension-led funding is particularly suitable for small and medium enterprises - where owners’/directors’ accrued pension benefits exceed £50,000 – as there is no requirement for business charges or personal guarantees (such as a family home or other personal asset).

History
Following changes to the Finance Act 2004, pension-led funding has become a recognised alternative to traditional business funding methods. In particular, Intellectual Property (IP), became one of a number of intangible asset classes permitted for this type of lending [References for HMRC documents on intangible assets and IP required]. This was further reinforced by the IP Office consultation document. [Document reference required here]

Structure
PLF is only permissible through a personal pension scheme held by owner(s) or director(s) of a limited company. It is not applicable to employee pension funds [Are there any others that are excluded?].

The two main PLF funding vehicles are Self-Invested Personal Pensions (SIPP) and Small Self-Administered Schemes (SSAS). Investment decisions made by the scheme must be made in the best interests of the members. Professional pension administrators are often appointed if PLF is being considered. These are usually members of the Pensions Management Institute.

Where balance sheet assets are used to secure the loan, the pension can create its own charge over all assets. Therefore, the scheme becomes a preferential creditor to the business. Should the business fail, the scheme stands first in line to call in its security, subject to  xxxxxxxxxxxxx

Appropriateness and criteria
Pension-led funding is not appropriate for every limited company and a number of criteria must be established through a rigorous process of due diligence. Currently, accrued pension benefits of more than £50,000 are generally required to make PLF a viable lending option. In addition, the funding has to benefit the owner(s) of the pension scheme. It is, therefore, unlikely that pension scheme trustees would recommend this form of funding for a business that is failing or likely to fail.

The due diligence process will also include detailed assessment of the following:
 * Company accounts
 * Track record
 * Business Plan
 * Projections for the individual business and the business sector in which it operates
 * Motivations and future plans of the business owner(s)/director(s)

Process
Following due diligence, where a SIPP or SSAS does not already exist within a company, a scheme is established under trust. Some, or all, of the accrued benefits held by the directors in other pension funds are then transferred into the new scheme.

Once the pension scheme is in place, the main funding options are:
 * A commercial loan from the pension scheme to the sponsoring limited company
 * The purchase of a recognised asset class – such as commercial property, intellectual property or xxxxxxxx – by the pension scheme
 * In certain cases, where the assets are not directly owned by the company, valuation of the business to enable the funding can be made primarily through the value of preference shares

Where IP is being considered for part or all of the funding, a fully-independent valuation is required to meet HMRC regulations.

The key regulatory requirements for a PLF loan are:
 * The loan must not exceed 50 percent of the pension fund’s net asset value
 * The loan should be secured via a first charge against an asset of equal or greater value to the loan capital, plus interest, over the period of the loan
 * The maximum term of the loan is five years
 * The loan must be repaid with equal instalments of capital and interest throughout the term of the loan.
 * An interest rate of at least one percent higher than the Bank of England Base Rate should be applied by the pension scheme

Once the asset and loan value has been agreed between the pension scheme and the limited company, the loan is put in place and money transferred from the scheme to the company bank account. Repayments from the company to the scheme commence within the following four weeks. These repayments are, under current legislation, subject to xxxxxx tax rebates as contributions to a pension fund.

A minimum of six to eight weeks is usually required to complete all aspects of the funding process, taking anything up to one year???? for more complex arrangements.

Costs
The set-up costs of PLF are usually more expensive than 'traditional' loan facilities This is because of the due diligence process and specialist pension-related advice required to determine suitability and appropriateness of a company for this type of funding. There is further initial cost if an independent IP valuation in required.

The high set-up costs are balanced by the savings on interest-debt, third-party arrangement fees and the lack of requirement for personal guarantees over the period of the loan.

This section requires independent figures if possible