A growing number of small business owners are using private pension funds to provide capital for their firms.
But while investing your retirement pot may be the solution for some, many advisers warn it could expose entrepreneurs to huge risks, the Daily Mail reports.
The latest Bank of England figures show that net lending to non-financial firms fell £700 m in May and many are looking for other sources for investment.
Bristol-based adviser Clifton Asset Management says it has helped more than 2,500 small firms release funds of about £250m from their pensions to back their companies, up from 1,200 in 2012.
Pension funding works by using your pension to buy an asset from your business, such as property or customer databases. But firms can also ‘sell' intellectual property (IP) such as inventions, designs or ideas, though the value of these has to be assessed by an independent valuer.
Government figures show there is £54bn of registered intellectual property in the UK, but Clifton's Adam Taverner estimates the value to be ‘at least five times this'.
He said: ‘Our research shows 84% of business owners have never had an IP valuation, while nearly half don't think their firm holds any IP value. Most small firms are unaware of the true value of intellectual property and its potential as a source of funding.'
One benefit of using a pension fund to buy IP in a business is that any increase in the value of IP will be free from direct taxation, as it is in the tax-free pension wrapper.
However, there are risks. There is no obvious secondary market for IP as there is for shares or property, which could pose a problem if owners want to sell the IP in their pension fund.
The Federation of Small Businesses said: ‘We would urge owners to be cautious and take a very commercial approach. To do otherwise could leave them with a big hole in their pension.'
Even so there are entrepreneurs who claim to have used pension funding successfully. Guy and Caroline Unwin set up Planit Products in Malvern, Worcestershire, in 2006. It designs and makes innovative household products such as Toastabags and Quickachip trays to help cook crispy chips.
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