In a previous Tenet Financial Group blog, the topic of Protecting Your Assets when applying for business funding was discussed as an important consideration when exploring funding to start a new business, new franchise, buy an existing business or recapitalize an existing business. Because retirements funds are creditor-protected assets and are used as a rollover funding source, not a traditional loan, retirement funds are also classified as a non-borrowed equity cash injection funding source.
Confused about the difference between personal equity vs. non-borrowed equity cash injections? Read on…
First, an injection is a “deposit” of sorts, or monies invested or applied to a business. If you inject funds into your business, you have put monies into the business’ books. Where that money comes from – either via personal equity or non-borrowed equity cash injection – is the question at hand.
An equity cash injection is inserting equity in the form of capital or cash for the purpose of lowering debt ratios and/or providing capital to stimulate growth. Equity provided as a cash injection cannot be borrowed money. For example, when buying a house, you can’t get a loan for your down payment. Your down payment monies have to be dollars that aren’t a result of another loan.
A non-borrowed equity cash injection is money applied to a business that is not part of a liability or loan to another entity. Retirement funds are considered a non-borrowed equity cash injection because they are funds that belong to the owner, free and clear of any liability for another loan. For this reason, plus many other reasons, ROBS (Rollover as a Business Start Up) funding is becoming more and more commonplace in today’s business ownership framework.
Most Small Business Administration loans require a cash injection at some level. For established businesses, the injection amount is usually 10-20 percent, where new businesses are required to inject 20-30 percent. Generally, each loan is individually considered based not only on the business, but also the business owner(s) circumstance, experience and business model/plan.
Tenet Financial Group specializes in guiding its clients throughout the funding process – and throughout the life of their business – for numerous loan types including ROBS funding, SBA loans, Equipment Leasing and more. Contact us today to speak directly with a senior consultant – 888-901-3335.