Published By Janet Gershen-Siegel at September 17, 2017
Got bad credit? Finding it difficult to fund your small business?
Venture capitalists want a big chunk of your business. Banks want collateral which you may or may not have. Other lenders might want you to have a better FICO score than you have, or they might want you to be able to prove a history of payments. If your business is brand new, then by definition, you could not possibly have any payment history.
Business funding doesn’t have to be hard to find. Some of it might be sitting in your lap right now.
One of your biggest personal assets could very well be your retirement funds. This includes your 401(k) accounts. You can use some types of personal collateral that you might have now including borrowing 100% of what’s in your 401k. You can even do this as a startup.
Even if you don’t have these types of assets now, you may very wellhave a partner, a friend, or a family member who does. And that person may be interested in letting you leverage their asset in return for a piece of your business (and usually for a far smaller piece than a venture capitalist would want). 401(k) financing is an example of a funding program which is commonly used by business partners.
You can use your existing 401(k) or IRA account as collateral for business financing. The idea is that, rather than investing in other businesses, you are using your IRA or 401(k) to invest in your own. This program actually uses IRS proven strategies. So you will pay no tax penalties and you can still earn interest on your 401(k). Plus you can pay lowrates. These rates can often be less than 5%.
You can even close and fund in less than three weeks. And you can usually get up to 100% of what’s “rollable” (that is, what can be rolled over) within your 401(k) account.
For many small businesses, using a 401(k) as collateral works, particularly if they do not yet have inventory or equipment (which could also be used as collateral). This type of financing has rates of 1-5% and it typically closes quickly. These loans are available even if you have bad credit, because a 401(k) is a proven asset. So your credit score could be as low as 350 and it simply would not matter. Asset-based financing means you will get to keep more of your business but still get the financing that you need.
Retain more of what your hard work has made by using your own retirement money now to fund your small business.