SBA Loan Down Payment: How to Use 401k/IRA Tax & Penalty-Free

Please check out today’s webinar regarding using your 401k/IRA funds as tax & penalty-free down payment for an SBA Loan.

Click HERE to Pre-Qualify for an SBA Small Business Loan


How to Use Your 401k/IRA as an SBA Loan Down Payment: Tax-Penalty Free

A rollover as business startup (ROBS) transaction allows you to use your retirement money to start or buy a business without paying taxes or penalties.

Key ROBS requirements

  • Use retirement funds in a former employer plan and/or non-Roth IRA
  • Use the funds to start or buy an active business (i.e. operating company providing goods and/or services)
  • C-corporation
  • Bona fide employee (e.g. 1000 hours per year)

ROBS 401k Process

Step 1: Incorporate C-corporation

Step 2: C-corporation sponsors 401k plan

Step 3: Rollover funds to 401k

Step 4: Invest 401k funds in the stock of the C-corporation

Step 5: C-corporation may use the funds for legitimate business purposes including as a down payment for a SBA loan to buy or start a business

SBA Loans: Basics

What is an SBA small business loan?

The Small Business Administration (SBA) doesn’t make direct loans to entrepreneurs or 401k plans to start or grow a business. Instead, it provides a guarantee to banks and lenders for the money they lend to small businesses owners. This guarantee protects the lenders interests by promising to pay a portion of the loan back if the business owner defaults on the loan.

SBA 7(a) Loan:

  • Amount: Up to $5 MM
  • Term: 10 years
  • Interest: Prime+2.25-2.75%
  • Down Payment: 10-30% down payment

SBA Loans: Process

Step 1: Prepare and Submit Application Package

  • Bank Application
  • Personal Financial Statement (Form 413)
  • Borrower Information Form (1919)
  • Three (3) Years of tax returns (including target business tax returns)
  • Resume
  • Business Plan

Step 2: Bank Underwriting

Step 3: Closing

  • Provide applicable documentation such as entity documentation, insurance, lease, etc.

Do you assist with the SBA loan process? Yes we are well versed in the SBA rules and will help you find a lender through our network as well as provide many of the documents required to close on the loan.

SBA Loans: Practical Considerations

SBA Guidance Regarding ROBS transactions

  • ROBS-funded business is eligible – Confirmed per recent SOP 50 10 6
  • EPC/OC structure is not eligible – Note: Some bankers are not aware

Discuss with bank early in the process

  • Lender may want to add/adjust terms (e.g. seller financing)

Getting Approved

  • Personal Financial Circumstances including credit score and other source of income
  • Business/Management Experience
  • Collateral including personal guarantee
  • Debt Service Coverage Ratio
  • Down Payment

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About George Blower

I have the privilege of educating our clients about our products and services so that they can make informed and confident decisions about their financial future. Prior to joining My Solo 401k Financial, I served as the general counsel for a subsidiary of a Fortune 500 financial services company. Learn more about George Blower and My Solo 401k Financial >>


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