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...
"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
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