Finding the financing to turn your business idea into reality is a challenge for many startup entrepreneurs. But you may already have the money you need to launch your business and not even know it. If you have a 401(k) plan or similar pre-tax retirement plan, you can take advantage of a little-known option called Rollovers for Business Startups (ROBS) to turn part of your retirement savings into startup capital. Rollover for Business Startups is also known as 401(k) Business Financing. Here’s a closer look at how it works.
401(k) Business Financing isn’t a tax loophole—it’s a fast, legal funding option that people have been using since the Employee Retirement Income Security Act became law in 1974. If you have an eligible retirement account with over $50,000 in it, you can tap into those funds to finance starting or purchasing a business or franchise.
Using 401(k) Business Financing to fund your startup has many benefits:
- There are no tax penalties or early withdrawal fees for using 401(k) Business Financing. That means you can make the most of your retirement funds as you start and grow your business.
- You don’t have to worry about monthly payments to a bank. For a startup just getting off the ground, the burden of monthly loan payments can be heavy. Using ROBS, your small business financing becomes Debt Free Financing.
- Your business can become profitable more quickly. Without loan payments draining your income, your business has an opportunity to keep more income and start generating profits faster than traditional business loans allow.
- You’re not putting your home at risk. When you finance your business through a home equity loan, second mortgage or mortgage refinancing, you risk losing your home if you can’t make the payments. With 401(k) business financing, you don’t need any collateral and can start your business debt-free, and eliminating any risk to your home.
- You’re investing in yourself. Instead of investing your retirement funds in the unpredictable stock market, 401(k) Business Financing allows you to put your money into an investment you control—your own business.
- There’s no credit score requirement. Your personal credit score may be less than perfect, but that doesn’t matter when you use 401(k) business financing.
- You can keep saving for retirement. 401(k) Business Financing requires your new company to create a 401(k) plan, so you can keep building your retirement funds while you start and grow your business. They are also the only providers to offer outside legal counsel as part of their package.
When choosing a 401(k) Business Financing provider, look for a company that has lots of experience helping entrepreneurs. Guidant Financial’s small business funding experts have helped more than 14,000 entrepreneurs access over $4 billion to finance a small business or franchise—more than any other competitor.
Suzy and Todd Ford turned to Guidant Financial’s 401(k) Business Financing method to transform Todd’s home-brewing hobby into a craft brewery business. “We couldn’t have done it without Guidant,” says Suzy of their 6-year-old brewery, which crafts a new beer every week and has since opened a second location.
For John Rueber, being laid off from a corporate job was a blessing in disguise. He used his 401(k) to launch TOAST Four Corners, a restaurant that brings Southern-style cooking to Connecticut. 401(k) Business Financing with Guidant Financial gave him an advantage over many other business startups, Rueber says: “Not having to pay a loan to a bank eliminated a lot of stressors.”
“We didn’t have the funds to start [a business],” says Chrissy Mayhew, who owns Beach House Miracles with her husband, Mike. The couple tapped into their 401(k) funds plans from previous jobs through Guidant Financial’s 401(k) Business Financing program. Today, their company, which remodels beach homes and condominiums, is thriving.
Find out more about Guidant Financial’s 401(k) Business Financing program.