Benefits of ROBS Transaction vs. Borrowing from Your 401k

When many entrepreneurs think of tapping their retirement accounts to finance a franchise or other small business, they think of taking a 401k loan or IRA loan.   While it is certainly acceptable to borrow from 401k accounts or borrow from IRA accounts (provided the owner of the IRA is not a disqualified party such as yourself, father, mother, son, daughter, to name a few), there is another 401k small business funding strategy that may be preferable to obtaining a small business loan from your retirement accounts.  This strategy is sometimes called rollover as business startup or retirement owned business (robs).

While both strategies entail using retirement funds to finance a business, a ROBS transaction presents the following benefits over borrowing from your 401k.

·        Unlike a loan from your 401k, there are no limits to the amount of retirement funds that you can invest in your business or franchise.  While retirement fund loans are limited to 50% of the account balance not to exceed $50,000, there is no such limit in the case of a ROBS business financing strategy.

·        Since you will not be taking a loan from your retirement account there is no required loan payments to your retirement accounts.  For a new business, the ability to minimize debt may be the difference between success and failure.

Find out more at the 401k small business financing page at http://www.mysolo401k.net/