Financing Your Franchise Dream from an Unexpected Source

Did you know that you could finance your business from your 401K or IRA without incurring a tax penalty? When we say finance, we mean all costs associated with your business from living expenses until you get profitable to franchise fees.

Economy Affects 50+ Age Group

Our economy has changed dramatically in the past eight years. One result has been that many employees over 50 years old have lost their jobs and are having difficulty finding replacement employment. Often, they have valuable work experience and retirement savings to use toward another venture because they are not ready to retire. Many would like to create a career bridge to retirement while building an asset that can later contribute to their finances when that occurs.

FM 401k-Button Fran Net blog

401k/ IRA Financing Advantages

In our experience with franchise candidates 50 years old and more, we see retirement fund franchise financing becoming an important resource for getting into business. The benefits over borrowing from banks or other financing sources are many:

  • You pay the principle and interest on the loan back to your retirement fund. Of course, your 401K or IRA takes the risk. But that risk is often the same one that you would take by borrowing since most lenders require a personal guarantee to pay off your loan.
  • Funding via your retirement account does not impact your credit report or score.
  • It is often faster to get the funds via 401K/IRA rather than by typical lending processes.
  • There are several credible firms available to assist you in setting up funding via your 401K or IRA. These companies have experience in setting up a government accepted C-Corporation inside your retirement account so there is no tax impact and it passes legal requirements as a non-personally directed investment.
  • Often the investment of the C-Corporation is only one of several funds within your retirement account.

Tax Deductions

Your C-Corp will cost money to set up and there will be a monthly management fee to the company you select to handle this transaction. The usual cost of this is $4,000 to $5,000 for set up and under $100 per month in management fees. All of these cost are expenses that are tax deductions for your C-Corp.

Choosing a company to assist with setting up your 401K or IRA as a funding source should be chosen by performing due diligence just like in every aspect of your business buying exploration process.

Two sources that will come up when searching for 401k business funding are Guidant and Fran Funding. Spend time discussing their services with them so you can judge how exactly they will support your business.

 (Pic from Fran blog)