There are many ways to obtain small business funding with the most used vehicle being debt financing with Small Business Administration (SBA) loans.
This is a perfectly legitimate if not expensive option for funding a small business. But what if I told you that you can avoid the interest expense and repayment schedule while still obtaining the finances you need for your business? Stay with me here. This isn’t common knowledge but there is a provision in ERISA (Employee Retirement Income Security Act) that allows you to invest your 401k into your business with no taxes or early withdrawal penalties. To show how this may affect your small business funding decision, let’s compare an SBA loan to the BORSA (Business Owners Retirement Savings Account) Plan.
Small Business Funding with an SBA Loan
The SBA does not provide small business funding directly. They guarantee loans through their affiliated lending institutions. The aspiring business owner must first meet the lending requirements of the financial institution before approaching the SBA. You need a solid business plan that covers any reasonable eventualities that may occur. You must include pro forma financial statements if you are a startup company and actual statements if you are a going concern.
The SBA will look to you to share in the risk of the venture and provide anywhere from 25 to 50 percent of the small business funding request. If you apply for a $100,000 loan, you’ll likely need to come up with a $25,000 to $50,000 investment. The SBA will require you to personally guarantee the loan should anything undesirable occur. You will likely be required to assign personal property as collateral against the loan.
The SBA and the financial institution will normally assign conditions for spending the proceeds of the loan. Specifically, they want you to spend the money on tangible assets that can be sold if the business fails. This may or may not be the best use of your money. With all the conditions placed on these loans, you may as well finance it yourself and have the freedom to manage your business as you see fit.
That’s Where the BORSA Plan Comes In
The BORSA Plan was developed by a Houston CPA firm to assist its clients in taking advantage of their 401k to obtain small business funding in complete compliance with the IRS. This is critical. Initial and ongoing compliance is required to prevent the taxman from coming to collect. And even more so, you want to ensure that your retirement funds are invested safely.
I’ll give you a brief overview of the plan so that you can review it with a qualified CPA.
Let’s say you have $100,000 in your 401k. Your business will be registered as a C-Corp and a value will be placed on it. For simplicity purposes, let’s put the value of the company at the same $100,000. Your new company will be set up to provide a 401k plan.
Are still with me here?
You will then take $100,000 from your 401k and purchase the stock in your company. This is basically a self-directed retirement plan. Your company now has $100,000 in cash, there are no taxes or penalties, and your retirement fund is fully invested in your business. You have no debt, no loan payments, and no interest expense in addition to a healthy balance sheet and plenty of working capital. And most of all you have the freedom to manage your business.
Pick up the phone right now and call 281-606-5719!! It's your money, your dream, and if you believe you have a solid business idea and are willing to put your all into bringing it to life then you deserve access to your own money without tax or penalty! The BORSA Plan will do that for you. Call now at 281-606-5719 and ask for Suzy Granger. If it's after normal business hours then leave a message, or fill in the short form below. Either way, your inquiry will be returned immediately upon resumption of regular business hours. Get the money you've already earned and start your dream, now!
