Sometimes the biggest obstacle to pursuing the dream of a new business is funding. If you don’t have enough capital, you’re done before you can even start. But there are diverse ways to apply for and receive money toward growing a new business venture. Bank loans are one way, but those come with fees, interest, and even penalties. Another alternative is a Roll-over for Business Start-ups, also known as ROBS. A ROBS arranges to use retirement funds to pay for a startup. But a ROBS requires a bit of extra thinking and planning to employ. Here’s exactly what to ask when choosing your ROBS funding service provider.

Is the Company Reputable, Responsible, and Licensed?

A ROBS involves taking retirement funds from a business owner and rolling them over into the business. While that seems straightforward, the process must be conducted with the law and IRS in mind. Done improperly, the process can lead to large tax penalties and, obviously, the owner can lose their retirement savings. Ask the company how many transfers they’ve accomplished and how long they’ve been in business. Also, ask them how they intend to keep your plan in compliance. Finally, see that they are licensed to engage in such transactions.

Are They There for Their Clients?

Recommendations from trustworthy friends and business associates who have engaged a ROBS funding service provider are, of course, invaluable. Secondarily, check reviews from previous clients who were pleased with their service and offer examples of how well the provider worked with them. Ensure that they have a reputation for explaining the process in simple terms as well, without skimping on handling the complexities of the transactions.

Ask if You Qualify, and Listen to the Answer

Here’s what else to ask when choosing your ROBS funding service provider: ask them if you are a good candidate, and then make sure they explain why you are in the following terms. To fund your business with retirement funds, you must know if you’re:

• Only qualified (pre-tax) retirement funds are eligible to be used in a ROBS plan. Funds in your current employers plans are eligible to be rolled over only if the plan allow for in-service distributions.

What Are the Next Steps?

Ask the potential provider to explain the upcoming process. They should make it clear what you both need to do and how to ensure all the rules are followed. They should explain how your business needs to become a C corporation, which means that it is taxed separately from you, the owner. The business must also not interact with other businesses that you own. Lastly, the 401k plan must be kept compliant and maintain all filing requirements and so forth.

We would welcome the opportunity to provide additional information and insights on how our 401(k) business financing, the DreamSpark® plan, might be the right funding solution for you. Please contact John Graham at jgraham@pangofinancial.com or call 302-543-8540 for a no-obligation introductory call.