Most of us, myself included, were brought up on the idea that you should NEVER withdraw from your 401(k). It should always be saved, grown, and available to you when you need it later in life. And that if you DO need to withdraw from it, you’ll be hit with a sizeable early withdrawal penalty. Well, The Daly Coach is here with my good friend Eric Schechterman of Benetrends, to shine some light on the ROBS program, which is a smart way to fund a startup business, including a franchise.
As Eric Schechterman explains:
“In my 10 years of doing this, if we pulled the thousands of clients that we work with on setting up rollover funding strategies, my bet would be 80% started off the conversation just like you said, “I would never touch my retirement accounts,” and then learning about it and figure out how it works. Here comes a company like Benetrends comes along and tells you that you can actually gain access to that. No tax, no penalty. And believe it or not, this program has been used to fund a small business since 1983. If I’m an employee at a company and participating in that company’s retirement plan, if you log into your retirement account, typically you have different types of investment options, right? You can buy stocks, bonds, mutual funds. And one of the common investment options is buying stock in the company that you work at. And that cash goes right to their corporate checking account. And that money is there for them to pay salaries, pay expenses, acquisition, R&D, whatever it seems fit. And that’s when I started to connect the dots a little bit.
The money that your plan used to buy those shares go directly to the corporate checking account. It’s not a loan. It’s not an early withdrawal. There is no debt service on this money, no payback schedule. That money is now in that corporate account that can be used for any legitimate business expense, acquisition, franchise fees, recapitalizing existing businesses. And it can be combined with other funding programs like SBA loans or anything else.”
Another point to bring up is that you don’t have to use all of your 401(k) mean, a lot of our candidates will use a portion, because even if you’re going for an SBA loan, the bank typically requires some amount of liquid cash injection. And that can come from the ROBS program like the first 20 or 30%.
Eric says, based on his experience in lending:
“Probably 70 to 80% of the aid packages that we get approved have a roll over tied to it, because when doing an SBA loan, three things matter most: liquidity, liquidity and liquidity. And a rollover creates additional liquidity where there wasn’t some. And I would tell you the most astute buyers, the ones that we typically get, were like, “Oh, this is a financial adviser. This guy’s got this huge IRA. He’s not going to want to touch this.” They’re usually the ones that jump all over this because they see that, wait a minute, this is pretax liquidity. The money in my checking account is post-tax. My home equity line of credit is tied to my home. The SBA loan is going to be collateralized, my house, all these other things. And I can just do this, be funded in 12 to 15 business days. Put the money back into my own retirement plan. Invest in myself. Let’s go. So it’s really fun to see.“
If you’re seeking to buy a franchise and are coming up short with ideas on how to franchise your business, The ROBS Program might be for you. If you’d like to speak with Eric Schecterman directly, e-mail me now and I’ll be happy to make a personal introduction for you!