Published By Janet Gershen-Siegel at September 17th, 2017
Yes, it’s true! Smart business owners are using their 401k to fund their business. And the good news – no – GREAT news is – you can, too.
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 401k accounts. You can use some types of personal collateral that you might have now. And this includes borrowing 100% of what’s in your 401k. Small business owners can even get small business 401k business financing as a startup.
Even if you don’t have these types of assets now, you may very well have 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 this is usually for a far smaller piece than a venture capitalist would want. 401k financing is an example of a funding program which is commonly used by business partners.
You can use your existing 401k or IRA account as collateral for business financing. The idea is that, rather than investing in other businesses, you are using using 401k to start a business or your IRA 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 401k. Plus you can pay low rates. 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 401k account.
For many small businesses, using a 401k as collateral will work. So this is particularly true if they do not yet have inventory or equipment. That’s because either of those 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 401k is a proven asset. So your credit score could be as low as 350 and it simply would not matter.
Use your existing 401k or IRA as collateral for business financing. This program uses IRS proven strategies. You will pay no tax penalties. And you still earn interest on your 401k. Low rates, often less than 5%. You can close and fund in less than three weeks. You can usually get up to 100% of what’s “rollable” within your 401k.
The business can get an approval for a 401k loan equal to 100% of the value of the 401k. The idea is you are investing the 401k in your own business. So this is instead of buying stocks in other businesses. There are no tax ramifications! This is a great way that smart business owners are using their 401k to fund their business!
Asset-based financing means you will get to keep more of your business but still get the financing that you need.
Do you have a friend or a family member with these types of assets? Then you could talk to them about being about to use their 401k for business financing. Of course your friend or family member will want some sort of compensation for this. And rightly so!
A common practice is to essentially buy the rights to use their 401k for financing. Do this as in exchange for a piece of your business.
The best part about this is that such guarantors generally won’t want as much of your business as, say, venture capitalists ever would.
Don’t think your 401k is big enough, or maybe you think you don’t want to use it? That’s okay. There are all sorts of smart business funding options out there.
Got stocks and bonds? They’re another way to come up with collateral.
You can use your outstanding account receivables for financing. You can get as much as 80% of your receivables advanced to you ongoing in less than 24 hours. The remainder of the AR is released once the invoice is paid in full.
Closing takes two weeks or less and factor rates can be as low as 1.33%. But your receivables should be with the government or another business.
So if you have purchase orders as well as accounts receivable, you can get financing to have those filled so you won’t need the cash to do so. Both of these are great options to get you money instead of you using your cash flow to do so.
You can also use your existing inventory as collateral for business financing. You’ll need inventory valued at $500,000 or more. You can get approval for a line of credit for 50% of your inventory value. Rates are usually 5 – 15% depending on your type of inventory.
And you can get funding within three weeks or less.
If you are an investor looking to buy and flip properties, and you have money, experience, and average credit you can get financing. You can get financing against commercial real estate. Also, you can get book of business financing if you’re an insurance agent.
Keep more of what your hard work has made. Do so by using your own retirement money now to fund your small business. Smart business owners are using their 401k to fund their business. And you can fund your business this way too!