Fund Your Small Business with a BORSA Plan

Entrepreneurs wishing to fund their small business often times turn to alternative sources of capital. A recent interview with Phillip Crum, owner of a Sir Speedy printing franchise in Dallas, showed us a compelling method to obtain money quickly through the BORSA (Business Owner’s Retirement Savings Account) plan, without having to get a traditional business loan.

How did you learn about the BORSA plan?

It happened about a year and a half ago when I was employed elsewhere at a printing facility in North Dallas. I had been working there for about 14 years, and I was doing some research on the side about what it takes to fund a new business. One day, when I was speaking with a local banker about SBA loans and the work involved such as time frames, down payments, and so forth, I found myself truly considering starting my own business. I spent about an hour in her office as she graciously talked with me about the different options available, but it was depressing me to the point where I thought that my current employment sounded like a good idea.

Quite by accident, I mentioned to her as I was leaving that I had a 401k, and that I wished I could get the money out of it. All of the sudden her eyes lit up, and she asked me if I had ever heard of a BORSA plan. Frankly I thought it was some sort of airborne disease, but she explained to me that it was a program that some CPAs in South Texas had put together, that was based on an IRS tax code called ERISA (Employee Retirement Income Security Act).

She said it was a program whereby you could obtain the funds from your 401k for use in purchasing your own business, without suffering the penalties or taxes that are associated with the early withdrawal of your funds. With my interest peaked, she immediately telephoned the DRDA/CPAs in Houston, and let me speak to the firm’s owner Douglas Dickey. We talked for a few minutes, and I told him that I wasn’t ready to start anything at that point.  However, he was very kind and agreed to keep in touch with me. The firm has established a growing network of bankers that refer people to them when the SBA loan option just doesn’t look feasible.

What was involved in the application process? Was it easy?

It was significantly simpler than you might expect. Any loan application process is usually very daunting, with foot-high stacks of papers to fill out. However, the BORSA paperwork was much simpler, with only about 10-12 pages. Most of those dealt with verifying my 401k so that a transfer could be initiated. Overall, it took about an hour and half to fill in all the paperwork. I then faxed it all off, along with a check for the fees involved, which was much less than the 20% required for an SBA loan. I don’t know how it could have been any simpler to tell you the truth.

As a result of using the BORSA plan, which is essentially borrowing money from yourself through your retirement plan, what do you think will be the long-term effects on the bottom line for your business and income?

Well actually, you're not technically borrowing money from yourself. The money from your 401k is transferred into another 401k for your new business. Then, you establish a C-corporation, and the stock that comprises your C-Corp for your company is traded or purchased by your new 401k. The ERISA tax act allows you to buy stock from your own company and hold it your 401k, which grows in value as your business does. So to answer your question about the long-term effects on the bottom line of my business and income, the direct answer is, when I do well in my company, then my 401k does well.

How long did the whole process take?

The whole process took about 6-7 weeks, and that’s actually a little longer than normal. There were a few things in getting started with our business that caused a couple of delays, but most of that was on my end. About 4-6 weeks is the norm from start to finish.