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Looking for small business funding but aren’t sure where to turn? Let us introduce you to 401(k) business financing (also known as Rollovers for Business Start-ups or ROBS), a funding options that allows you to tap into your retirement funds tax and penalty-free to finance your business. Sound too good to be true? It’s not, we promise. In this in-depth, complete guide to Rollovers for Business Start-ups, you’ll learn everything there is to know about this unique and viable business financing solution.

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Coming Up Short While Sitting on a Goldmine

All too often, aspiring business owners turn only to the funding sources they’re familiar with. A recent survey of entrepreneurs by Guidant Financial revealed that over fifty percent used personal checking and savings accounts to fund their business. While this is an excellent option if you have enough cash on hand to get started, most entrepreneurs are out of luck.

The next logical step most entrepreneurs turn to is a bank loan. You got your mortgage from a bank – why should a business loan be any different? Loans guaranteed by the Small Business Administration can be an excellent source of funding, but only about 25 percent of applicants are approved. If you’re one of the lucky recipients, you’ll still need to bring a 20 to 30 percent down payment – and collateralize your home. If you’re denied an SBA loan, don’t have cash for the down payment or aren’t interested in collateralizing your home, your business funding options are further limited.

There are other forms of debt-financing with less-friendly terms than the SBA loan – but again, those come with their own requirements (not to mention the burden of starting your business under a pile of debt). Is it starting to feel like your dream of business ownership wasn’t meant to be? You’re not alone.

Thankfully, there’s another option that allows you to leverage the pre-tax retirement funds you’ve been steadily building since entering the workforce. Your 401(k) or IRA is an untapped mountain of cash and is the bases for 401(k) business financing. This little-known financing solution, formally known as Rollovers for Business Start-ups (ROBS for short), is a debt-free option that thousands of entrepreneurs across the country have used to make their business dreams a reality.

What is Rollovers for Business Start-Ups?

Rollovers for Business Start-Ups (ROBS) is a small business and franchise funding solution. It involves using your 401(k), IRA or other eligible retirement accounts as capital to start or buy a business – without incurring an early withdrawal fee (if you’re younger than 59 and a half) or tax penalties.

ROBS is most commonly used by individuals who do not have the cash on hand to outright purchase their business — which is the case for most entrepreneurs. It’s also great for aspiring business owners who may not qualify for a business loan, those who don’t want to go into debt and/or those who don’t want to collateralize their home or other personal assets. It’s an ideal funding method for those who have $50,000 or more in their retirement fund and want to grow their retirement funds by investing in themselves and their entrepreneurial dreams instead of the stock market.

What will be covered in this guide?

In this complete guide, we’ll walk through everything you need to know about Rollovers for Business Start-ups:

  • How the ROBS process works.
  • The history and legality of ROBS.
  • The advantages of ROBS and how it compares to other funding methods.
  • The truth behind common misconceptions
  • What to look for in a quality ROBS provider.
  • Annual requirements and upkeep.
  • Dos and don’ts of the structure.
  • How to explain ROBS to your CPA or tax attorney.
  • How to exit the structure when you’re ready to sell your business.

How much of this guide do I need to read?

If you’re serious about funding a business or franchise without going into debt or putting your home on the line, we recommend reading this guide from start to finish. Each chapter presents a thorough view of an element of Rollovers for Business Start-ups, and proceeds in a linear order to build your knowledge base before moving on to the next topic.

By the end of this guide, you’ll know every detail there is to know about this lesser-known business financing solution. Let’s get started!