Last week’s post at Transaction, my New York Times blog, looked at an increasingly popular way to finance the purchase of a small business: rolling over funds from your 401(k). Business brokers see buyers use this financing alternative all the time yet it is still a relatively little-known option, even within the financial services community. One of my favorite comments on the post came from Tom Gazaway of Hawkeye Management, a provider of unsecured business loans with offices in Blackwook, NJ and Bentonville, AR:
Great piece Barbara. Not only informative but I think you covered the risk side of these transactions as well. We all know that if the banks were handing over lots of approvals that the need for ROBS may not be “as great” but there’s still a need. There’s definitely due diligence requirements when you risk your nest egg but I like how the guy from Guidant put it and I agree that as an entrepreneur I would rather invest my money with myself than with other businesses. Still a risk but entrepreneurs have been “all in” for a long time and ROBS offer a great option for the right people. Thanks.
There were several interesting comments on last week’s post, all positive save for one naysayer. There’s no doubt that any type of financing you use to buy a small business is subject to risk — whether it’s your home equity, savings, loans from friends and family, or retirement funds. I’ve heard stories of people “cashing out” their retirement to start or buy a small business, which makes me wonder if they were unaware of this method — sometimes called a self-directed 401(k) — which avoids the taxes and penalties associated with early distributions.
Here at Synergy we are always happy to assist with ideas for financing a small-business purchase, especially in today’s difficult lending environment. If you’re in the market to buy a small business, it may be worth your while to look into a 401(k) rollover. Feel free to contact us and we can help you learn more.
Photo courtesy of 401kplanadvisors.com via reviewfound.com