Small business loans have been fairly difficult to come by, to say the least. CIT, a huge small business lender, although not the only game in town, is in trouble, but has done a nice volume of loans for the franchise and small business start-up community in years past. So now what?
Now, it's time to start seriously thinking of creative financing arrangements. Although controversial, maybe tapping into your 401K's for some of your start-up funds, isn't a bad idea.
I have noticed that most of the negative comments concerning the 401K rollover plan ideas come from CPA's. it's very predictable;
A prospective franchise owner goes to his or her CPA's office armed with information on a 401K Rollover plan, and the CPA says…
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"I really don't recommend doing that. Your retirement funds are meant to be used for your retirement."
The franchise candidate says "I feel that if I don't take a shot at building some equity for myself in a business of my own, I'll never be able to have a nice retirement lifestyle, anyway."
Therein lies the conundrum. (Definition-A paradoxical, insoluble, or difficult problem; a dilemma)
So, do you take a shot, and borrow some retirement funds to set up your business, or do you just take the wait and see approach.
I am all for this option. But only if;
- There is $200k or more in the fund
- The candidate has other assets to fall back on
- The candidate commits to only using a portion of the fund
- The administrator has lots of experience
Would you be willing to use a portion of your retirement funds for a business start-up, if there were no penalties in doing so?
Update; The Cleveland Plain Dealer's take on the CIT Bankruptcy. Read