With the credit crunch threatening to squelch small-business starts, more buyers are bypassing HELOCs to tap into IRAs for financing
Bellevue, Wash. (October 15, 2007) – In today’s economy, small business entrepreneurs are finding Home Equity Lines of Credit (HELOC) both harder to come by and less lucrative. The shaky housing market has left lenders distrustful of home appreciation values, and those homes that have appreciated over the years are less likely to command the prices they once did. Consequently, many borrowers are shut out of HELOCs, and entrepreneurs are being forced to look elsewhere for capital to fund new businesses.
An increasing number of would-be business owners are turning to a relatively unknown source of funding: IRAs and 401(k)s. By using a variation of what are known in the industry as self-directed IRAs, retirement account holders can access their own retirement money before retirement age to purchase a business without paying early distribution taxes or penalties or subjecting themselves to high-interest loan payments.
“Business funding via retirement funds rather than HELOCs is an exciting and fast-tracked route into business and for many, greater success,” says David Nilssen, president and CEO of Guidant Financial Group, a leading provider of self-directed IRA services based in Bellevue, Wash. “Given the current credit crunch, I fully expect the growing trend of entrepreneurs using retirement funds to continue its torrid growth pace.”
Investing in a privately held company requires the retirement plan to be structured as a customized 401(k) and that the stock of the business also be structured in a specific way. Nilssen points out that there are many benefits to such structures. “First, you are investing in a business you control. Second, your 401(k) will grow in value as the business grows. Lastly, depending on the size of your retirement account, you may be able to buy the business without using any debt.”
Even those with limited retirement funds can use their IRA money to reduce the amount of debt incurred, use funds to qualify for SBA loans, or combine it with capital from other business partners. Depending on each unique situation, tapping into IRA funds for business ventures may be the funding option that “fills the gap” for entrepreneurs.
Guidant Financial Group provides investors with safe and innovative options to invest for their retirement futures. Guidant is the premier provider of self-directed IRAs and business funding solutions through an individual’s IRAs and 401(k)s. Guidant's services allow investors the freedom to make alternative investments in real estate, franchises, businesses, tax liens and more. For more information on self-directed IRAs or small business financing please visit www.guidantfinancial.com.
