Today’s business loan marketplace is the tightest in recent memory. Credit score requirements are higher, collateral demanded is greater, time in business requirement is longer and for to many small business owners, small business financing is out of reach. If you have looked for working capital or a business loan for your company you’ve likely been frustrated by the results. Creative entrepreneurs are looking for alternatives to a traditional bank loan.
How about a loan from your future self? Perhaps your retirement future will loan you the money needed to buy, fund or expand a business opportunity?
A self directed IRA is an alternative to small business financing that allows entrepreneurs to access money in their IRA or other retirement account to fund a business buy a franchise, even make business loans to other entrepreneurs. A successful investment you could potentially lower the overhead of your new business and provide higher retirement-account returns along with other benefits:
- Utilize funds from retirement accounts like IRAs, 401(k)s, 403(b)s, Keoghs, SEPs, etc., without incurring early distribution taxes or penalties
- Launch your small business or franchise with minimal (if any) debt while securing significant tax benefits
- Combine your retirement funds with the retirement funds of a business partner or spouse
- Save thousands in interest fees and protect your personal credit
- Invest profits tax-deferred back into your business or pension plan
- Lower business overhead while potentially growing your retirement account
That is the good news. Now, let’s step back to reality – many businesses fail.
If your business idea or franchise opportunity is so good, why doesn’t anyone else agree enough to risk some of their own money? Do you know how many businesses fail within 5 years? Do you know how many thought they would fail? (Hint: 0%) Should your business even deserve capital? Can you live with a bigger downside of a smaller retirement next egg in addition to a failed business?
Entrepreneurs are optimists by nature. Please accept the fact that you can not accurately judge a business opportunity that you are excited about. Self directed retirement funds are a great alternative to a business loan, but you need to consider all the risks and be able to live with the downside.
Here’s a great rule of thumb: Convince someone else to invest some money into your business or get a business loan before you use your retirement funds.
Have you every use your retirement account to fund a business venture or make a business loan? Please share your experience so we can all learn…