Franchise Articles

Posted on Aug 08, 2013

IRA & 401(k) Franchise Financing

Find Franchise Funding Where You Least Expect It:  In Your Own Retirement Account

There’s a little-known method of business financing that doesn’t get much press.

Perhaps it’s because of its awkward name: Rollovers as Business Startups (ROBS), or maybe it’s just a consequence of the bigger funding fish stealing the spotlight.

Whatever the reason, 401(k) rollovers are a legal, viable option that should no longer be ignored—especially in challenging economic times when credit may be hard to come by.

Rollovers as Business Startups work like this:

1)    The new business owner files a C Corporation.

2)    A 401(k) is created that provides for the purchase of corporation stock.

3)    The new business owner rolls a portion (or all) of their eligible retirement funds into the new 401(k) plan.

4)    The new plan invests in the stock of the corporation.

5)    The corporation obtains a business.

Aside from the simplicity and speed of funding (most transactions take less than a month), the greatest benefit of these arrangements is that when structured properly, they carry no tax penalties.

Furthermore, they enable entrepreneurs to start their ventures with a clean financial slate—completely debt free, so monies can be used for other aspects of the business. There are no interest payments on loans to worry about, and if the entrepreneur doesn’t have a sufficient amount of funds in their retirement account to get off the ground, they can combine theirs with that of a spouse or business partner.

The main thing to remember is that the setup of the structure should be handled through an experienced provider who specializes in these arrangements. Those not well-versed on the ERISA tax laws that govern the practice may run the risk of preparing the account incorrectly, which could result in stiff penalties or even a termination of the plan.

As with any financial transaction, the entrepreneur should investigate the companies they choose to help launch their new business and feel good about where they’re placing their trust.

In conclusion, thousands of new businesses and franchises have been created using 401(k) rollovers. With the right assistance, this method of financing can be simple and convenient for entrepreneurs looking to start their business debt-free.

To request information on Guidant Financial, CLICK HERE

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