RP case studies: Maximising business growth with SSAS secured loan

This real client case study shows how a SSAS can be used to fund the growth of a family business by making a secured loan, writes Richard Mattison

Valerie and David have a small self-administered scheme (SSAS) which was established over ten years ago by their business, an advertising agency. 

The SSAS fund was invested in commercial property and had accumulated a value of £800,000 including £250,000 cash generated from rental income over the years. Their company was sold three years ago and deciding on a change of lifestyle the couple bought a farm.

Valerie and David have three grown up children one of whom, Matthew, ran a small currency trading business which they helped him to form and injected capital by purchasing a minority shareholding. 

Matthew’s business flourished and he had the opportunity to take on a couple of significant clients provided the company could increase its capital reserves, as required by the regulator. In addition to obtaining funding via the usual channels, Matthew’s business joined Valerie and David’s SSAS as a participating company. This was possible as Valerie and David were shareholders. Matthew also joined the scheme as a member and the company paid a small pension contribution on his behalf to formalise the arrangement.

The SSAS then made a loan of £200,000 to the company to make the extra capital needed. The loan was within the maximum allowable, namely 50% of the SSAS fund and was made on the standard HM Revenue & Customs (HMRC) terms of five years with capital and interest repayable in equal annual instalments.

A commercial rate of interest of 5% p.a. was applied to the loan, giving an income for the SSAS. 

The other key HMRC rule was that the loan had to be secured by a first legal charge although the security doesn’t have to be provided by the borrowing company. Valerie and David were, therefore, able to use some of their farmland as security as its value was in excess of the loan capital and interest payable over its term, which complied with HMRC’s regulations.

The injection of extra capital, Matthew’s company increased its turnover and trading profits which not only allowed him to meet his loan repayments but also to pay further contributions to the SSAS for himself, of £30,000 over the next two years. This, however, is only part of  the story. Matthew’s business soon successfully listed on the AIM market, raising some £30m from investors.

The SSAS loan was successfully repaid at this point having served its purpose well while Valerie and David are proud parents and Matthew a grateful son!

Richard Mattison is director Whitehall Group