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Go Debt-Free: Benefits of Using Your 401(k) to Buy a Business

The dream of business ownership can be a reality without having to pay any tax penalties or even needing a loan.
Go Debt-Free: Benefits of Using Your 401(k) to Buy a Business
Image credit: Courtesy of Guidant Financial
By By David Nilssen, CEO and Co-founder, Guidant Financial

When it comes to small-business financing options, it’s usually traditional funding methods that come to mind: working capital loans, SBA loans, business lines of credit, etc.

But did you know an alternative option exists that’s allowed thousands of entrepreneurs to launch businesses debt-free? It’s called a Rollover for Business Start-up (ROBS), and it enables individuals to leverage their own retirement assets to buy a business without having to pay any tax penalties or get a loan.

The ROBS arrangement was made possible by the Employee Retirement Income Security Act (ERISA) of 1974 and has since made the dream of business ownership a reality for many.

Here are some of the key benefits of using retirement funds to buy a business:

Launch a business with equity, not debt.

By funding your business with assets you already have, you won’t have to make monthly repayments or worry about interest rates. Plus, because the ROBS structure doesn’t trigger an early withdrawal penalty or other fees, you can put more of your money to work for you.

Even though it’s called 401(k) Business Financing, it actually works with any pretax retirement fund such as 401(k), 403(b), TSP, SEP, 457, Keogh, Pension, or Traditional IRA.

No collateral/credit requirements.

The only requirement for 401(k) business financing is to have a ROBS-eligible retirement fund (more than just 401(k)s qualify) with more than $50,000 in rollable assets. We’ve found lesser amounts aren’t as advisable or worthwhile. As such, you won’t need to jeopardize your home or personal credit as collateral unless you’re applying for other, more traditional business funding methods … which brings us to our next point.

You can use ROBS funds as the down payment on a loan. 

If you plan on going the more traditional funding route, you can avoid pulling from your personal cash reserve by using the money from ROBS as the cash injection. Using ROBs as a down payment on an SBA is a common practice for Guidant’s customers. ROBS as a down payment on Seller Financing is another option many clients use.

Invest in yourself, not the stock market. 

While the stock market may be doing well right now, it’s just a matter of time until its next dip—which means less money for investors. With such uncertainty, why not use your money to invest in yourself and your dreams?

Just like any investment, using retirement assets to start a business can carry some risk, but for many, the ability to own a business and control their future outweighs any downfall.

If you want to learn more around ROBS and working with Guidant Financial, fill out the form for your free information session today.

David Nilssen is the CEO & Co-founder of Guidant Financial, which helps individuals secure small business funding to start, buy or grow a business with 401(k) business financing, SBA loans and more. Read more tips about finding and financing your business on the Guidant blog at

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