The Investment & your funding plan
There are more ways than ever to fund your business these days, and knowing how much you can afford to invest in a business is every bit as important as knowing how much you can invest in a house. Of course, there may be a range of what you are willing to invest when you factor in the ROI, your overall financial picture, and other factors, but the question “where does the money come from” is probably one of the first questions most people ask when starting a business.
There are probably more ways than you are aware of and it’s possible to use a combination of these options.
The availability of funds and what you may qualify for depends on a number of factors including your own credit score and net worth.
Frequently more than one source of funds is used. The typical places money comes from outside of your own savings include:
Called “Roll-Overs for Business Start-Ups,” this allows you to use funds from your 401k, IRA, 403(b) or other retirement account with no taxes, penalties or debt. It can also be the necessary capital injection for a Small Business Administration (SBA) loan.
Allows you to use your portfolio to guarantee a loan without disrupting your investments.
The Small Business Administration does not actually provide loans; they guarantee a part of the loan for local banks, thereby mitigating some of the risk those banks incur in making the loan. Ranging from micro-loans to loans of up to million.
It is possible to get a loan based on the equity in your home and use this money for your business.
These loans are made by banks without the benefit of the SBA guarantee, and can be much harder to obtain because they are primarily made based on the credit risk of the business and collateral provided by the borrower.
You can frequently get funding for 100% of the amount of any machinery, equipment and vehicles.
Franchise Funding Article
By FranFund
We’ve all heard the old adage. “Whatever you do, don’t touch your retirement funds.” But what does that mean? Can’t all of the funds on your personal balance sheet be considered retirement funds?
Funding Your New Franchise
Turning the tables on your career and going from employee to entrepreneur is a dream that many people aspire to reach. Finding funding can be daunting at first glance, but with the right funding partner, it can be a painless process. There are several ways to fund your new franchise that can be used individually or combined to best suit your personal situation.
Funding Your Franchise with SBA Loans
Another strategy for funding your franchise is utilizing Small Business Administration (SBA) Loans. Under the SBA process, a portion of the loan is guaranteed by the Small Business Administration. SBA loans are granted through traditional banks and lending institutions and can be an excellent option for qualified candidates because the SBA incentivizes lenders to provide funding to new business owners. To help a borrower look its best to a lender, FranFund developed a franchise-specific pre-qualification tool called FranScore™. This tool is used to analyze a potential loan applicant’s credit profile from a lender’s standpoint and take measurable steps to minimize any potentially negative factors. FranScore™ not only saves time during the loan process, but it enjoys a best in-class 99% success rate. If you are considering franchise ownership, FranFund has been trusted by countless people looking to make the switch from employee to entrepreneur. We pride ourselves on providing customized funding solutions, making it painless and straight-forward, and keeping your specific goals in mind throughout the entire process.
Isn’t All Money Potentially Retirement Money?
Retirement planning is broadly defined as the process of determining retirement income goals and the actions and decisions necessary to achieve those goals. If you work diligently to grow your business with the goal of building wealth for your retirement, wouldn’t that be a prudent investment?
The primary difference between money in your 401(k) or IRA – and cash in your checking account, savings account, or securities portfolio – is that the money in a retirement account is pre-tax (unless it is a Roth IRA). Contrary to popular belief, you can access those pre-tax retirement funds to invest in your own business, without incurring any penalties.
The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for most voluntarily established retirement and health plans in private industry. This is to protect individuals who hold these plans. This act formed the basis of the program that the Internal Revenue Service refers to as ROBS, or Rollover For Business Start-Up.
In the simplest terms, ROBS allows an individual to buy stock in their own C corporation, using funds from a qualified 401(k) or IRA. At the conclusion of this transaction, the newly established 401(k), which is sponsored by the newly created C corporation, has shares of stock equal to the value of the investment. The corporation’s checking account has cash which may be used for any legitimate business expense.
Let’s examine an analogy. When you buy stock in a publicly traded corporation, such as Apple, you own those shares of stock. You hope that Apple is using that money to grow the value of those shares. If you’ve purchased shares within your own retirement account, the same principle applies, with the major difference being that you are in the driver’s seat. When you sell those shares, the original investment plus your returns will go back into your retirement account.
