ONE of the primary challenges facing small and medium enterprises (SMEs) today is access to funds. Whether it’s to address cash flow or to invest in the growth of the business, it can be a difficult and complicated process, with no guarantee of a positive outcome.

But while existing pension savings are often overlooked when exploring business funding sources, it begs the question as to why this is? More specifically, what are the barriers - perceived or actual - to business owners considering pensions as a source of business funding?

To this end, @sipp recently surveyed 750 SME business owners - firms of up to 250 employees - for insight into the behaviour of business owners when it comes to their attitudes both towards business funding and their business premises.

The survey found that a fifth of SME owners have sought business funding in the past three years; boosting cashflow was the main reason for seeking funding (37 per cent), followed by wanting to grow the business (18%) and buying machinery, equipment and vehicles (17%); eight in 10 have never even considered using their pension savings as a source of business funding; where respondents use premises for their business, 69% own one or more of their business premises; and seven in 10 SME business owners have existing pension savings, averaging out at £192,589.

There are clear conclusions to draw here, the most striking of which simply reaffirms the long-held belief that the vast majority of SME business owners do not even consider using pension savings for business funding. However, the ownership of business premises is widely considered desirable and, for a large minority of SME business owners, there is a need for some source of business funding.

There are two routes to using existing pension savings and business premises as a source of funding. Both are based on the rules governing self-invested personal pensions (Sipps) allowing for commercial property to be held directly as an investment, including a company’s own premises.

The first is the equity release model where the business, or its owner, already own the premises and can place it into a Sipp, effectively exchanging the pension fund already accumulated for the property itself. This releases the ‘sale’ proceeds to be invested.

The other route is the funded-purchase model, where the accumulated pension savings of those involved are used to fund the purchase of the property, which they do not already own. This means that the business does not have to source alternative funding for the purchase and can use any capital held for other priorities.

However, the single biggest factor preventing more businesses from benefitting from such a solution is that many simply do not know that such an option exists.

Another barrier is that not knowing what is involved in the process can simply deter people from starting out on or even considering the option. Alternative business funding sources can be considered more attractive simply because they are perceived, rightly or wrongly, as more tried and tested. Where there are known time constraints, familiar business funding sources can be considered to be the simplest and most reliable option.

Our research also overwhelmingly found that the main concern around using pension savings as a source of business funding was a perception of it as being risky or that it could materially erode the value of pension savings. However, it is important to remember that the Sipp fund is investing in a physical asset - the bricks and mortar of the business premises - and not the business itself.

As with any solution, it will not be suitable for all, but all options should be on the table, at least for initial consideration. It is important to bear in mind that this is a tried and tested arrangement that is prevalent throughout the UK - some of the UK’s biggest landlords are Sipp providers.

Lee Halpin is technical director at @sipp.