Advantages of 401(k) Business Financing Over Standard Loans

Having enough money on hand is perhaps the most common roadblock for enterprising new business owners. Without adequate funding for payroll, inventory, equipment, and other expenses, many new businesses stagnate in their early years. If you’re looking to get a leg up without going into debt, consider 401(k) business financing and its advantages over standard loans.

It’s Your Money

The largest difference between 401(k) business financing and a standard business loan is, of course, where the money comes from. When you finance your business with your 401(k), the money is already yours; you won’t have to budget for loan repayments or pay any interest.

You Can Maintain Control

Because the funds in your 401(k) account are already yours, you get to keep control over how you use the money. With a small business loan, you have to factor repayments into your monthly budget. And if you’re borrowing from a venture capital firm, they have some sway in the business as they sit on your board of trustees.

It’s Better for Business

A popular form of 401(k) business financing for businesses is called ROBS, or Rollover for Business Startups. It involves setting up a 401(k) program in your company’s name and “rolling over” the funds from your retirement account to the new one. Having a 401(k) program is a great benefit for your business, as it encourages high-quality employees to join your company.

You Will Avoid Penalties

Using a ROBS to finance your new business carries all the benefits listed above while helping you save money. A ROBS allows you to draw money from your retirement account in order to start or buy a business without incurring an early withdrawal fee or tax penalty. More of the funds remain in the account for you and your business to use.

When it comes time to raise funds for your new business, consider the many advantages of 401(k) business financing over standard loans. Keep more of your money within your business and encourage first-rate workers to apply to your company.

If you wish to look at more of the funding possibilities available to you, check out Pango Financial’s handy funding solutions tool.