Rollover as Business Startup (ROBS) vs. Loan

What are the advantages using a ROBS plan to finance my business as compared to traditional small business financing options?

Most aspiring or existing business owners looking for financing for their business consider just two options: borrow funds or sell an ownership stake in their business. Another option that may be available is referred to as a rollover as business startup (ROBS) plan that allows the entrepreneur to use his or her 401k, IRA or other retirement funds to finance the business.

There are several important differences between ROBS and traditional small business financing options:

No credit check is required for ROBS

While a lengthy credit approval process might be required to obtain a loan for your business or franchise, no credit check is required for a ROBS transaction such that in many cases a business owner is able to access the funds more quickly.

No loan payments required for ROBS

With a loan, you will be required to make regular payments (including interest) to pay back a small business loan. Such payments are not required when you roll over your 401k or other retirement funds into your business. For a startup or growing business, these payments will take cash out of the business when it may be needed most.

No personal assets pledged for ROBS

If the business fails, you will still be required to pay back the loan and if you are unable to do so you will likely forfeit any assets pledged as collateral including in some cases personal assets. On the other hand, failure of the business will not require repayment of retirement funds invested through a ROBS plan.

Retain ownership interest

Selling an ownership interest in your business will dilute your control of the business and share of the business profits. With a ROBS transaction the ownership interest is held in your retirement account allowing you to retain control of the business.

Given these differences, many entrepreneurs have elected to finance their business via a ROBS transaction.

To learn more about using your retirement funds to finance your business or franchise, please submit your contact information or call us at 1-800-489-7571.

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