Interested in capital for a business and short on the cash?
Interested in capital for a business and short on the cash?
That may not be a problem.
If you have Retirement funds – i.e. IRA, 401K, 403b, 457, Annuities – you CAN ACCESS those funds Without Taxes and Without Penalties.
Today many people are choosing to save their cash and obtain funding in other ways. One popular funding option is to access traditional IRAs or 401K funds (from a prior employer). If you have retirement funds and you have not yet paid taxes on those funds, you can use them towards the purchase of a business. This can be for both a new business as well as for an existing business (for recapitalization). You are in control; you determine how much of your funds you would like to invest in your franchise or business.
At Tenet Financial Group, we follow all of the IRS guidelines with regard to this funding option. We help clients anywhere in the United States. Clients can use these funds for all or part of their total funding. There is no IRS minimum or maximum with regard to the amount of retirement funds you wish to use for this purpose. Typically this is a beneficial option for people with $30,000 or more in retirement funds. This funding option is NOT a loan; these funds are actually used to buy stock in your business. Since you are using the funds to buy stock, and the funds are not a distribution to you personally, there are no taxes or penalties.
People are using this self directed 401k funding option for all types of businesses. We are seeing this for service based businesses (like Homewatch Caregivers, Above Grade Level), for brick and mortar businesses, and even for vending/kiosks businesses (i.e. DVDNow or TapSnap). Most often prospective franchisees did not know that they could access their 401K/IRA funds, prior to a conversation with the franchisor or their business coach.
For store front businesses, that tend to be more expense than service based businesses, this has been very common for businesses like Jakes Hamburgers.
The majority of the clients I have helped with funding in 2012 used two financial strategies to start or expand their business. They have accessed some of their retirement funds (tax-free and penalty free) or they have obtained unsecured lines of credit. A number of people have also used a combination of funding options.
Determining the strategy that is best for you depends entirely on your unique situation. You’ll need to consider the amount of capital needed, the timing, your financial history, and how much capital you have available.
Use your retirement funds – tax free!
Over the past five or six years, retirement funds have become one of the most popular ways – if not the most popular way – of funding small businesses in America. Years ago there were other options that people turned to when starting a business, but due to the economy, the lending environment, unemployment, the housing market, and the large number of people that have left Corporate America, things have been different recently.
For people with retirement funds, whether they are traditional IRAs, 401K, 403b, 457, pensions, annuities, people are now learning that they can access Their Funds. It is an empowering feeling to know that you can be in control. When I speak with clients that weren’t familiar with this topic and they learn the fundamentals of this funding option, the lights go on. It is an “ah ha” moment, and I know they are getting more excited about business ownership ….without debt.
You may have heard the nickname Rollover over as a Business Start-up, or ROBS for short. This strategy is also commonly referred to as a Self-Directed 401(k).
If you have an Individual Retirement Account (IRA) or a 401(k) plan from a previous employer worth $30,000 or more, you can “rollover” the money as capital for your new business, without paying taxes or penalties on it.
You are allowed to access these funds with no taxes, no early-withdrawal penalties and no payback requirement, as long as you adhere to Internal Revenue Service Guidelines (IRS). We follow all of the IRS Guidelines very closely and monitor the plans carefully throughout the year.
The Flow of the Funds
Here’s how it works: Form a Corporation (Tenet Financial Group will set this up for you and provide you with your Articles of Incorporation, your Federal tax id, and provide you with Corporate minutes and bylaws). Then we assist you in rolling funds from your old retirement account into a new 401K plan that we establish for your business. You then wire funds from your new 401K account to your corporate checking account.
Tenet helps our clients with each and every step of the process. It is key that all of the IRS guidelines are followed. A person can’t do this process on their own. They would need to enlist the help of a qualified plan specialist or a third-party administrator like Tenet Financial group to facilitate the process.
What if your IRA or old 401k doesn’t have enough for your funding needs?
Or if you don’t have a retirement fund, or can’t access it because it is held with your current employer; there may be another way …..
Many people are looking at unsecured lines of credit for additional funding or working capital.
The benefit of an unsecured line of credit is that you don’t need to put collateral such as your home on the line, and no financials are required.
What you’ll need to quality:
• A credit score of 680+
• A good credit history with no liens or bankruptcies and no or very few late payments
• Reasonable credit use i.e. you aren’t carrying too much debt on other lines of credit
The goal is to the get clients as much credit as possible by accessing multiple lines of credit. Usually, it is at a zero percent rate of interest for up to 18 months. This has been greatly advantageous for both new and existing franchisees with Homewatch Caregivers, DVDNow, and 9Round.
Additionally, if you have a spouse or a partner in your business, you may be able to pool your resources and qualify for more.
This year a number of my clients have used a combination of both retirement fund and unsecured lines of credit to expand the possibilities and growth for their businesses.
Ultimately, the best funding option for each person has many variables. We strive to assist each of our clients with the most appropriate funding for their needs.
Diane Rosenkrantz has been working in the pension industry/consulting/customer service areas for the past 25 years. Currently, she is assisting clients, brokers, and franchisors across the country find the best funding options for their businesses. A specialty of Tenet Financial Group is working with clients that have retirement funds; and Diane helps educate them on the process of accessing those funds for businesses.
Tenet Financial Group is a comprehensive Third Party Administration Company with over 70 years of combined experience in Self-Directed 401(k) plan design, installation and administration. Tenet Financial Group effectively simplifies all aspects of the retirement plan administration process for our franchise or independent business owners. With more automated processes, our systems are more accurate and efficient in managing your retirement plan data.