Creative Financing

Creative Financing
by Claire Bridges, Business Coach

We all know, that starting your business takes time, energy, patience, perseverance, and, last but not least, money. When it comes to funding your business, you may be searching for grants, pitch competitions to enter, small business loans, and investor opportunities. As your trusted go-to at the SBDC, we try to provide you with as many possibilities and resources as we can to help make your business successful. Today I’d like to introduce another option for funding your business. We all know that to qualify for a small business loan, lenders want to see an owner investment of at least 10-20% of the total project cost to prove that you are committed to the project. Depending on your overall start-up costs, this can end up being quite a large amount of money that you may not have easily available to you. If you find yourself in this situation one opportunity for funding your business is through ROBS financing. ROBS stands for ‘Roll Over for Business Startups.’ You can use this to fund the entire project, a portion of the project, or to put it forward as your cash investment in addition to a traditional business loan.  Most commonly used with a 401k plan, traditional IRAs, 403(b) plans, and others, this option allows you to transfer money from a retirement or savings account to be used for purchasing a business, buying a franchise, or starting your own new business. Perks of using a ROBS investment for your small business is that there are no tax penalties or penalties for early withdrawal when transferring funds, it is debt-free money, no collateral is required, and qualification is generally easier than obtaining say an SBA loan. Of course, if the business fails you risk losing hard-earned retirement funds. Also, consider that your money will be taken out of money markets, therefore you lose the ability for growth in that aspect. There are, of course, some guidelines to follow when using retirement savings as a rollover to your business start-up, like the need for your company to be registered as a C Corporation. Thankfully, there are companies that will work with you to guide you through the entire process. Guidant Financial is one of those companies, here is an article they wrote on the Do's and Dont's of ROBS Financing.  Investopedia also covers the 6 best ROBS providers for 2023 in this article. If you are interested in this type of financing for your business I would be happy to talk more in depth with you about the possibility. You can make an appointment on my calendar here. I wish you great success with your business in the new year and can’t wait to learn of your successes!