A Small Self-Administered Scheme (SSAS) is a type of UK pension scheme that provides a flexible retirement savings option for business owners, directors and high-net-worth individuals. One of the benefits of a SSAS is that it can lend money to outside investors, providing an additional source of income for the scheme.
In this article, we’ll explore how SSAS lending works, the advantages and disadvantages of SSAS lending, and what to consider if you’re thinking about using an SSAS to lend money to outside investors. Here at Aventine Property, we offer the perfect investment property goals to our clients.
How does SSAS lending work?
A SSAS can lend money to a wide range of borrowers, including individuals, companies, and trusts. The loan can be secured or unsecured, and the terms of the loan are negotiated between the SSAS and the borrower.
Typically, a SSAS will lend money to outside investors as a way of generating income for the scheme. The interest rate on the loan is set by the SSAS and will depend on a range of factors, including the creditworthiness of the borrower, the level of security provided, and the term of the loan.
The borrower will make repayments to the SSAS over the term of the loan, which will include both the principal amount and the interest charged. The SSAS can then use these repayments to pay out retirement benefits to scheme members or reinvest the money to generate additional income. Further explanation of SSAS read money helper.
Advantages of SSAS lending
There are several advantages to using a SSAS to lend money to outside investors:
- Flexibility: A SSAS can lend money to a wide range of borrowers, providing a flexible source of income for the scheme.
- Higher returns: The interest rate on a SSAS loan is typically higher than that of a savings account, providing a higher return on investment for the scheme.
- Security: A SSAS loan can be secured against assets, providing an additional level of security for the scheme.
- Control: The SSAS trustees have control over the terms of the loan, including the interest rate, term, and security requirements.
- Diversification: SSAS lending can be a useful way to diversify the scheme’s investments, reducing the risk of relying on a single investment strategy.
Disadvantages of SSAS lending
While there are many benefits to using a SSAS to lend money to outside investors, there are also some potential disadvantages to consider:
- Risk: Lending money always carries a degree of risk, and there is a risk that the borrower may default on the loan, leaving the SSAS out of pocket.
- Due diligence: The SSAS trustees will need to carry out due diligence on potential borrowers to ensure that they are creditworthy and able to repay the loan.
- Liquidity: A SSAS loan is not a liquid investment, meaning that the scheme may not be able to access the funds immediately if needed.
- Regulatory requirements: The SSAS trustees will need to comply with a range of regulatory requirements when lending money, including ensuring that the loan is made on commercial terms and that the scheme is not lending more than 50% of its net assets.
What to consider when using a SSAS to lend money
If you’re thinking about using a SSAS to lend money to outside investors, there are several factors to consider:
- Risk appetite: SSAS lending carries a degree of risk, so it’s important to assess your risk appetite before committing to a loan.
- Due diligence: The SSAS trustees will need to carry out thorough due diligence on potential borrowers, including assessing their creditworthiness and ability to repay the loan.
- Terms of the loan: The SSAS trustees will need to negotiate the terms of the loan with the borrower, including the interest rate, term, and security requirements.