Tag: 401K

How to Solve Your Business’s Lack of Capital with 401k Business Financing

How Can 401k Financing Help a Business?

The world of business involves many risk-taking attempts. Business owners experience numerous obstacles from the moment they plan and start their business to maintain it and make sure it grows. From developing your business ideas to looking for qualified people to hop on board your venture, starting a business takes a lot of courage, patience, and knowledge. Financing via a 401k could be an avenue you haven’t thought of.

All businesses face different kinds of hurdles and challenges in the process of starting and growing their venture. The Small Business and Trade Alliance conducted the Small Business Trends survey on over 2,400 current and aspiring business owners in the United States. This survey included questions about their current biggest obstacles as business owners.

It’s Even More Important Now

Although the pandemic, without a doubt, can be considered one of the greatest challenges of 2020, the survey also contained questions about non-pandemic-related challenges. Among these top challenges include recruiting and retaining employees, marketing and advertising, time management, administrative work, and managing and providing benefits. The number one challenge, at 23%, however, is the lack of capital or cash flow.

In the United States, around 20% of small businesses fail in their first year and 50% in their fifth year. The lack of capital is one of the numerous reasons small businesses end up throwing in the towel.

Business owners are usually thoroughly aware of and keep a close watch on how much money is needed to keep the company or the business going. It includes expenses such as daily spending, payroll funding, paying fixed and varied overhead expenses like rent and utilities, and payments for external vendors or suppliers. They also make sure to explore various and alternative investment strategies as a way to increase their funds.

Keep on Top of Things

On the other hand, business owners who do not closely monitor expenses and revenue generated from sales of products or services are more likely to fail than succeed. In addition, it can lead to inadequate funding, which could ultimately put the business out of operation.

With this, it is critical for aspiring and current business owners to be in tune with the financial state of their business. Financial challenges and hurdles are inevitable and are part of the business process. However, business owners must explore various ways to fund their venture. There are several ways to get financing for your business. Getting business loans is one of the most common methods to do this.

Another way to solve your business’ lack of capital is to consider 401(k) financing. What is 401(k) financing? First, this article will discuss what 401(k) financing is and how it works. Next, it will tell you more about how 401(k) financing can solve your business’ lack of capital and, lastly, the benefits and possible risks that come with it.

Demolish your funding problems with 27 killer ways to get cash for your business.

What is 401k Business Financing?

401k Credit Suite401(k) business financing is one way your small business can solve its lack of capital. Also referred to as Rollovers for Business Start-Ups (ROBS), 401(k) business financing is a small business financing method. This method allows you to withdraw money from your retirement account to start or fund your business without having to pay a tax penalty or an early withdrawal fee.

An important thing to note is that Rollovers for Business Start-Ups merely gives you access to the funds you have in your existing retirement account. This method is ideal for those aspiring and current business owners who lack capital but do not qualify for a loan, do not want to go into debt or do not have any cash-on-hand available to fund their business. This method does not consider your credit score, on-hand collateral, or past experiences to qualify for it. The main components of this method would be the retirement account you have. Such as a 401(k) or an Individual Retirement Account (IRA), and the amount of money you have in it.

Demolish your funding problems with 27 killer ways to get cash for your business.

How does 401k Business Financing Work and How Does It Solve a Business’ Lack of Capital?

In 401(k) business financing, your retirement plan serves as your investor. To access these funds without having to pay a tax penalty for early withdrawal fees, it is critical to, first and foremost, establish a ROBS (Rollover Business Start-Ups). This structure consists of several components which must adhere to certain requirements for compliance with the Internal Revenue Service, or IRS—the federal agency responsible for overseeing, administering, and collecting taxes.

The first step would be to establish a C corporation, also known as a regular corporation. It is the only entity type allowed to sell shares to a retirement account and within the ROBS structure. In this way, it will help release your business’s funds.

Your New Plan

Next, put together a retirement plan for your new business. Although there are other options such as profit sharing and defined benefits, most business owners opt for the standard 401k. You will need a custodian to manage the investments in the plan and have the responsibility to keep records, administer the plan, and modify its investments the way you deem fit.

After this, roll your existing retirement funds from your plan into the new retirement plan under the C corporation. Since the funds have already been rolled over to the company retirement plan, the plan then buys stock in the C corporation through a QES transaction or a Qualified Employer Securities transaction. Thus, it is the step wherein the money is rolled over and made available for the business to use.

Why Do It This Way?

The first step is essential since you would not be able to do a QES transaction without it. Finally, once the QES transaction is finished, your retirement funds can now be accessed by the corporation. You can use them to solve your business’s lack of capital. Or you can pay off the pending expenses you may have.

The Benefits of 401k Business Financing

401(k) financing, also known as ROBS or Rollover Business Start-Ups, offers numerous benefits for aspiring and current business owners alike. This financing technique may come off as complex. Still, it is one of the ways to solve your business’ lack of capital. Here are some of the benefits of 401(k) business financing:

Flexibility and control over investments

In 401(k) financing, you have control over your retirement funds. It allows you to support your business and make it grow financially. Through this, your business has the potential to earn a significant return with tax-deferred growth.

Terminate or reduce debt

Most loans require monthly payments, which may eventually turn into debt. Unlike most loans, 401(k) financing gives you the ability to use the funds you already have. In addition, since 401(k) financing does not require you to pay interest, it helps reduce your day-to-day costs and other operating expenses you may have.

Collateral free

The only requirement of 401(k) financing is a qualified retirement account. You will not need to put up a down payment or sign over a property to receive the funds. This is unlike most financing methods that will require you to do so.

No credit check

Since 401(k) financing is not considered a loan, a credit check is not included in its requirements. With this, no evaluation will occur, and you can proceed with 401(k) business financing even if you have a low credit score, as long as you have a retirement plan.

Deposit via ROBS

The funds in your 401(k) plan may also be used as a down payment for your small business loan (SBA). Reducing debt is considered to be one of the top benefits of 401(k) business financing.

Demolish your funding problems with 27 killer ways to get cash for your business.

Final Thoughts on Using Your 401k for Business Funding

Aspiring and current business owners are no strangers to the challenges and obstacles of starting up and growing a business. Although these hurdles may be intimidating and sometimes overwhelming, you can overcome them.

One of the top challenges small business owners face, aside from the impact and effects of the pandemic, is the lack of capital. However, this is a matter that you can solve through 401(k) business financing. When done correctly, it helps business owners fund their venture. And it does so without worrying about tax penalties, early withdrawal fees, and falling into debt.

Navigating 401k business financing and how it can help solve your business’ lack of capital can seem intimidating if it is new and unfamiliar to you. However, finding the right company that offers a 401(k) financing program can help ease your worries.

We Can Help!

Let Credit Suite help you with that! Credit Suite offers a wide range of programs, from their 401(k) financing program to other business loans and business credit programs. So whether it be a 401(k) financing plan or other business loan and credit programs, Credit Suite has got you and your business covered!

401k Credit Suite

 

Jill Santos is an early childhood educator and a freelance content writer for The Stock Dork. She is passionate about serving others through research, education, and the arts.

 

The post How to Solve Your Business’s Lack of Capital with 401k Business Financing appeared first on Credit Suite.

Can I Use a 401K Loan To Fund a Business?

You can use a 401K loan to fund a business. But, just because you can doesn’t mean you should.  It appears to be a fabulous option.  Your payments will just be going back into your account, and any interest will be paid to yourself. In reality, it is a good idea, until you realize there is an even better way.  

Should You Take Out a 401K Loan For Business Purposes? 

When it comes to using a retirement plan to fund a business, a 401K loan isn’t the only option. Technically a distribution could work too, but that’s not wise. More about that later.  There is actually another option that many do not know about. 

Unlock the Mystery of the 401K for Working Capital Program

It’s not so much of a mystery as it is widely unknown.  This Credit Suite program offers a flexible and powerful way for a new or existing business or franchise  to leverage assets that are in a 401(k) plan or IRA. These are assets which are tied up in stocks. 

It doesn’t take long either.  In as little as 3 weeks you can actually invest a portion of these funds into your own business. Then, you not only have more control over the performance of your retirement plan assets, but you also have the working capital you need.

This type of program even has the blessing of the IRS. In fact, they  have their own name for it. It’s called a Rollover for Business Startups (ROBS). 

Will it Cause More Tax Issues Than a 401K Loan? 

No it will not.  According to the IRS, a ROBS qualified plan is a separate entity. It has its own set of requirements. The plan technically owns the business, not the individual. That means some filing exceptions for individuals might not apply to the plan. That said, always check with a tax expert when it comes to tax matters.

Find out why so many companies use our proven methods to get business loans.

Do You Qualify for a ROBS? 

Surprisingly, this type of financing is pretty easy to get. You do not have to submit financials or have good credit to get approval. In fact, all the lender will ask for is a copy of your two most recent 401(k) statements.

If the plan has a value of more than $35,000,  you can get approval. This is true even if you have really bad personal credit. You can get however much of your 401(k) is “rollable.” Sometimes, you can secure a low-interest credit line or loan for 100% of your current 401(k) value.

The plan you use cannot be from a business where you currently work. It will have to be from previous employment. Also, you can’t still be contributing to it. 

Benefits of a ROBS

The benefits of this option are many.  First, you can get 24-hour pre approval. Also, you pay no penalties for the rollover. Plus, you pay no application fees.

You can get approval even with bad credit, and the time from application to funding is 3 weeks or less. A big bonus is this type of funding will report to the business credit reporting agencies. That means you build business credit!

How Does it Work? 

It sounds kind of crazy but it works. Credit Suite business credit experts will help every step of the way.  First, we’ll help you set up a 401(k) plan in your company.  Then, you’ll invest your 401(k) funds in it. Your business then has cash, but no debt. Despite how complicated it sounds, It’s all super easy and fast on your end. We handle the hard stuff.

Also, with our program, you will get more than just the financing.  You will work with a CPA that will help you roll over a non-contributing and qualifying account. By doing this, you can cash out half, or $50,000, whichever is lower.

If applicable, they will  also structure a self-directing IRA for the rest of the fund. You will get 5 years of management and consulting services for your business.

The Question of Terms

The cost is 1% and the term is 5 years. There is a $4995  lender fee.  Remember, this includes 5 years worth of management and consulting.

Find out why so many companies use our proven methods to get business loans.

Why Can’t I Just Take a Distribution to Fund My Business with My Retirement?

Unless you are 59 ½ years old, there is an early withdrawal penalty of 10%. If you think about it, you would be paying a lot to use your own money. Don’t do that.

ROBS vs. a 401K Loan?

First of all, not all plans allow for loans.  If your plan does, the IRS will only let you borrow up to 50%, up to $50,000, before you have to start paying taxes.

Also, you would be paying interest.  That isn’t terrible, as you are paying interest to yourself. However, you will be making monthly payments, whereas with the 401K Rollover for Working Capital, there is no payment.   

This is a unique program. It allows you to tap into your existing retirement account without penalties or taxable distributions. You also avoid loans, banks, or credit checks. There is no debt and no monthly payment. 

What if You Need More Than You Can Get with This Type of Financing? 

Whether you decide on a 401K loan or you go the ROBS route, you may find you still need more.  It’s not uncommon to need other funding options to bridge the gaps between how much is available from your 401(k) and how much you actually need. 

One great option that compliments 401K financing well is the Credit Line Hybrid. You can get up to $150,000 in unsecured business financing. Similar to a 401K loan and the 401K for Working Capital program, you do not have to turn in a lot of documents.  In fact, this is considered “no-doc” financing. 

You do need to have a 680 or above credit score. However, if you do not meet this or other requirements, you can take on a credit partner that does. Many business owners piggy back off the good credit of a friend or family member until they improve their own. 

What makes this an especially good compliment to 401K financing, is that it also reports to the business credit reporting agencies. This just speeds up the rate at which you build your business credit score. 

Business Credit Score

Even though neither a 401K loan or the 401K for Working Capital Program require good credit, it’s important to understand this one thing. The 401(k) for Working Capital Program does help you build a strong business credit score.  It isn’t easy to find accounts that report your business credit report. 

Credit Suite works with business owners every day that are struggling with this.  Most account holders do not make it clear whether they do this or not.  We work with those that we know do, and this program is one of the easiest ways to get another account reporting. 

Find out why so many companies use our proven methods to get business loans.

Do not underestimate this benefit of the 401(k) financing program and the Credit Line Hybrid.  It is something that should be considered when making a financing decision.  Your business credit report can make a difference in whether you are able to get funding from another source in the future. 

Funding a Business With a 401K Loan

If your retirement fund allows for loans, and you have enough available in your account, then the answer is yes. You absolutely can. However, there is another, better option, for using your retirement account to fund your business.  Contact Credit Suite today to get started.

The post Can I Use a 401K Loan To Fund a Business? appeared first on Credit Suite.

Achievement in funding… $21,000.00 in Artesia, CA with 401K financing

Devera Group, Inc. obtained $21,000.00 in 401K financing. This allowed them to move forward on business growth goals.

Provided help when needed and became a great solution.

We are excited to be a part of your success!

Click Here to see how much funding you can get for your business.

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Happiness achieved … $77,800.00 in 401K financing!

Our client wanted to expand his business but needed the means to do so.  He was so pleased with the ease of this type of financing and the limited documents needed.  His time wasn’t wasted on providing endless documents, so he could continue to focus on running his thriving business.  This financing will be a great asset in moving forward with his goals.

Glad to be a part of our client’s continual success!

Click Here to see how much funding you can get for your business.

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