Pension-led funding to fuel business growth

Despite numerous government initiatives to stimulate bank lending, it appears no easier to secure vital capital for growth.

We meet three entrepreneurs who are using their pension pots to fund business development.

A career spent with the then Pricewaterhouse as a chartered accountant was enough to persuade Jan Van Der Velde that he wanted to start up his own business – all he needed was an idea.

The breakthrough moment came about due to a tearaway daughter who was, as Van Der Velde puts it, a bit of a ‘wild child’. When he went about constructing a play area in his house he realised he was on to something and decided to build a business around it.

An early cash injection from the bank worth £30,000 was enough to get him started and he slowly built his Kit for Kids business up after securing Stoke Mandeville as his first client. While the hospital didn’t like the play area, it did like the play mats and led Van Der Velde to direct his new business that way.

A steady and healthy relationship with banks including NatWest, Barclays and RBS was compromised when the recession hit and soon Van Der Velde was looking for a new form of finance due to RBS not wanting to help any more.

‘We have looked at external investors but that would be the last route we’d go down, it is about control,’ he explains.

‘It is also a very expensive way of funding a business as you are giving away so much.’

Van Der Velde says that at this time he had to become a bit more creative and a chance tip-off from an existing pensions adviser alerted him to the possibility of funding the company by utilising his existing pension pot (find out more about the funding option here). He contacted Clifton Asset Management, parent company of, and got the ball rolling.

‘I had a bit of money in another pension and it was suggested that we bring the money into a company pension scheme and then we could get funding through the company name,’ he says.

‘Up until that point I had been quite rigid in how I looked at raising funds, but of course when the recession came I had to be a bit more imaginative.’

Fast cash

By moving his pension into a company one, Van Der Velde was able to draw down £125,000. This gave Kit for Kids more working capital and, a year later, allowed it to be ranked as the 21st fastest growing company in Kent.

Van Der Velde adds, ‘We’ve always been quite aggressive with growth. We’ve got great plans, but the problem was that once the recession hit there was this fear that no more cash was available.

‘We needed to raise money by alternative means to make sure that we could keep on our path and not have a glass ceiling to growth.’

Kit for Kids has already begun paying back the drawdown and has since gone back to acquire a further £60,000. Another nice result, Van Der Velde says, is that his pension is actually growing.

The risk of extracting funds from his own pension was not something that ever crossed Van Der Velde’s mind. Like most entrepreneurs, he was firm in the belief that his business would be a great success.

His advice for fellow entrepreneurs who may find themselves in a similar situation to him is to think outside the box more and not be limited by sticking to conventional funding methods.

Now his business is charged for growth it has opened up a new base the US and is planning to do the same in Hong Kong. With a turnover of £6 million, Van Der Velde is predicting plenty of new contracts on the horizon.

More on alternative finance methods:

Asset-based lending no longer the poor relation

Banks’ hesitancy leads to more considering alternative funding

New consortium brings together alternative funders

Numb fingers

Like Van Der Velde, business building had not been something that Tony Curtis had ever considered before he founded Alago.

The business produces heated gloves and its history can be dated back to a morning in 2006 when Curtis was watching his son play rugby in the biting cold. Believing that it would be easy to find a pair of mitts to keep his son warm online, Curtis was surprised to find that nothing suitable existed.

A background in education provided him with none of the necessary tools he needed to become an inventor, but he persisted and soon came up with a rough prototype.

In the early days Curtis was forced to keep his job as a behaviour specialist in schools, as well as moonlighting as a contract photographer (self-taught he tells me).

The first step was to secure the necessary patents to protect his burgeoning intellectual property. Getting the patents nailed down was not a difficult process, Curtis says, due to the help of a good patent attorney who took care of all the wording for them.

With his idea firmly developed and protected from copycats, Curtis then needed cash to find a manufacturer and produce some stock. An appearance on the BBC’s Dragons’ Den did little to solve this problem and the new entrepreneur was given a lashing from Duncan Bannatyne and Peter Jones who both claimed to have seen the invention elsewhere.

Aside from his time in the den, traditional finance had been the only method that Curtis had considered. He explains, ‘We didn’t think about other options like venture capitalists or trying to bring an investor in. The world of business was entirely new to me and my focus was on finding a bank that could help and funding it ourselves.

Initial responses from banks which Curtis approached was positive – all thought it was a good idea. However, once the proposal had been taken to the overdraft team the enthusiasm evaporated and most deemed it too risky.

HSBC stepped in as an interested bank and provided Alago with an overdraft, but it wasn’t enough for Curtis to get manufacturing.

Helpful advice

By attending a finance session hosted by Outset Bristol Curtis got speaking with one of the advisers who was there on the day providing free business training. This talk opened him up to pension-led funding.

There were two contributing factors which Curtis believes meant the business was a good fit for the funding mechanism. He explains, ‘It was my money, so I’m not asking anyone to come in and buy into the idea.

‘Also, you have got this pension fund which sits there till you retire, and varies based on the market and what it has been invested in. To take that out and invest it in myself, and then choose what the rest gets put into, is much more appealing than just leaving it for someone else.’

The problem for Curtis came when he had to transfer what had originally been a local government scheme to a private one. Accessing the funds ended up taking months and not weeks due to the Local Authority dragging its heels when it came to signing papers.

Now that the process has been completed, and Alago was able to access £27,000 of Curtis’s £60,000 pension, it has given the business the capital it needs to reach the next stage.

Curtis chose to secure the loan through a general debenture. However, from a collateral perspective, a portion of the company’s IP was independently valued to supplement the business’s balance sheet and this facilitated the loan.

Now it is looking to partner with retailers such as cycling chain Evans and equestrian brand distributor Westgate EFI to take its products to a wider market.

Burning rubber

Another first-time entrepreneur who has used pension-led funding to grow his business is Dick Cormack, founder of trye business DMACK.

In 2008 Cormack decided to leave behind his job with tyre manufacturer Pirelli to start up on his own and produce a racing-grade tyre.

When I speak with Cormack he’s fresh off the plane from a trip to the Monte Carlo Rally where the company’s tyres were being used.

Prior to gaining the accreditation to become one of only two manufacturers charged with producing tyres for the World Rally Championship, the business had been steadily growing.

Securing the accreditation meant that the business ‘skyrockted’ overnight, Cormack says, and suddenly there was an immediate need for funding to be able to cope with the fresh demand for DMACK products.

Up until that time Cormack had been funding the business in a traditional sense. ‘It wasn’t a great deal of money,’ he says. ‘We started with small container by container lots – £30,000 here and there with the profit we made being ploughed back into the company.’

Like Curtis, Cormack developed a sound relationship with HSBC but needed a little extra to get the business moving as fast as he wanted to. His wife was the one whose research discovered pension-led investment, which fit the bill for DMACK due to the brand IP having been established.

The process to secure the £75,000 that DMACK was able to draw down took eight weeks, and was matched with the same amount by HSBC.

The business had begun as Cormack had envisaged: supplying a single size tyre to UK rally drivers. However, DMACK’s market began to expand rapidly. ‘Before we knew it we were into Europe,’ Cormack comments, ‘then South America, Australia and New Zealand. Within a couple of years we had a business providing 28 tyre sizes and 50 compound and tread combinations.’

DMACK has also been able to fund a substantial research and development project which has allowed it to grow at an even larger pace. Turnover for 2012 was £3.8 million and Cormack says that this year is predicted to hit £9.2 million.

While his business has been able to access the much-needed capital it needs to grow, Cormack is blunt in his assessment of those which have been unable to do so.

‘You just have to look at what is out there. I think at the end of the day, all lenders want something in return and you have to be able to satisfy that.

‘You’re not going to be able to get something for nothing these days, and once you realise that you can move forward.’

Hunter Ruthven

Hunter Ruthven

Hunter was the Editor for from 2012 to 2014, before moving on to Caspian Media Ltd to be Editor of Real Business.

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