ROBS funding (Rollover as a Business Start Up) is becoming more and more common in today’s business financing landscape for a number of reasons. Here are a few key considerations that translate to definite “pros” in a ROBS/401(k) rollover-funded business start up, new franchise, buying an existing business or even recapitalization of an existing business:
- Tax- Deferred and Penalty-Free Funding Option
ROBS/401(k) plans allow you to use your personal retirement funds to start your business without having to take a taxable distribution or an early distribution penalty. Retirement fund-based plans are approved by the IRS to be used in this manner.
- Not a Traditional Loan
A ROBS/401(k) rollover plan is unlike a traditional loan or credit source where debt is incurred and monthly payments are required. Your business does not have to make payments against retirement funds used to fund a C Corporation, leaving the company free to reinvest any free cash flow.
Using a ROBS also means you are using creditor protected assets – your existing retirement dollars – to fund your C Corporation. If you close your business, your remaining retirement funds not invested in the business are protected from seizure to satisfy the remaining business debt. With traditional loans, you are responsible for the remaining debt if the business closes.
- Use Your Retirement Funds to Invest in Yourself
Being able to use your retirement funds to invest in a business started and operated by you is yet another benefit of using a ROBS/401(k) rollover funding plan. Rather than keeping your investments in other companies, stocks and bonds, you’re investing in your new C Corporation.
- Financial Advantages
When you use a ROBS plan to open a new business, buy a franchise, purchase an existing business or recapitalize an existing business, you not only become a business owner you are also eligible to participate in the company 401(k) plan just like all other employees can. Plan participants are allowed to contribute a percentage of their income on a pre-tax basis each pay period. That means that in addition to your tax savings for offering the plan and providing matching contributions, you’ll receive yet another tax savings for participating in the plan yourself. As the business owner, the savings can be significant.
- Easier and Often Faster Funding
Funding a start up business or franchise, buying a new business or recapitalizing an existing business using a ROBS/401(k) rollover plan does not require a credit check because the funds already exist in your retirement account. You are simply reinvesting them into your new C Corporation. Thus, funding is often obtained faster (in as little as 3-4 weeks) and no credit check – as is necessary for a traditional loan – is needed.
Tenet Financial Group has nearly eight decades of combined funding experience to its credit and our talented and dedicated team can help you determine if ROBS/401(k) rollover funding suits your current needs. We can also assist with other funding options such as SBA loans based on your individual situation. Contact us today to speak directly with a senior consultant – 888-901-3335.