When using an SBA (Small Business Administration) loan to fund your small business, you will likely be required to provide some form of equity injection, which is money that a loan applicant must provide up front as a stipulation of receiving the loan. A borrower is required to make a cash investment into the business for two reasons. First, lenders want to see that a borrower is personally and financially committed to the success of the business. Second, like a down payment on a home, an equity injection decreases the amount of money needing to be borrowed, which is considered less risky by the SBA and the lending company.

With the launch of the SBA SOP 50-10 for lender and development company loan programs, the rules for obtaining an equity injection have changed, and not necessarily for the better. SOP stands for “standard operating procedure” and is in place to keep everyone on the same page regarding loan procedures (which, initially, sounds like a good thing). The problem with the new SOP 50-10 lies in the fact that a loan applicant is no longer able to use cash from a home equity loan or other form of personal credit for an equity injection. The only exception to that rule is that if the borrower can demonstrate repayment ability using other sources than the business cash flow; then they can get the equity injection virtually problem free. Realistically, though, how many people have loads of cash sitting around that is not invested elsewhere?

To help prospective business owners come up with the necessary funds for an equity injection, the DRDA CPA firm offers a program called the BORSA plan. BORSA stands for Business Owners Retirement Savings Account and is a legal structure that allows entrepreneurs to fund a business start-up or purchase a franchise using funds from an existing retirement account. Qualified plans include 401(a) pension, profit sharing 401(k), 403(b), 475, or IRA rollovers. No taxes, penalties or distributions are incurred from early withdrawal.

The steps to utilizing a BORSA plan are fairly simple. First, you must form a C-Corporation, which sets up a 401(k) profit sharing plan. Existing retirement funds are then placed into the new 401(k) of the C-Corp. The contributor of the 401(k) plan then invests in the new C-Corp in exchange for stock.

By combining a BORSA plan with an SBA loan, you can make your small business dreams come true. So if you are contemplating using an SBA loan to fund your new small business, but are in need of money for an equity injection, the professionals at DRDA CPA can help by providing viable options such as a BORSA. For more information about how the BORSA plan can be your equity injection rollover solution call DRDA CPA today at (281) 954- 6040 or visit www.borsaplan.com. Don’t let the SOP 50-10 stand in your way another day!