A small business loan application sitting on a desk. Nearby is a calculator, a pen, a pair of glasses, and some cash.

Using a ROBS Plan To Secure an SBA Loan for Your Business

If you’re planning to start a new business or expand an existing one, you’ll need to secure the necessary funding. Small Business Administration (SBA) loans are a popular option for entrepreneurs, but obtaining approval can sometimes be difficult.

One effective strategy to increase your chances of securing an SBA loan is to use a Rollover for Business Startups (ROBS) plan. This method allows you to invest your retirement funds into your business without facing penalties or taxes. Let’s delve into how you can use a ROBS plan to secure an SBA loan for your business.

What Is a ROBS Plan?

A ROBS plan permits you to access your 401(k) or other retirement funds to finance your business. To do this, you need to set up a new C Corporation and rollover your retirement funds to purchase stock in this corporation. Essentially, you’re investing in your own company by placing those funds at your disposal for business expenses, including securing an SBA loan.

Understanding the Advantages of Using a ROBS Plan

Consider the following benefits of utilizing a ROBS plan:

No Additional Debt

A major benefit of a ROBS plan is that it provides access to capital without the need for incurring extra debt. ROBS plans are especially advantageous for new businesses that may already be under financial pressure.

Cash Flow Preservation

By utilizing retirement funds instead of depleting business revenue or personal savings, you can preserve vital cash flow. This will help you maintain daily operations and handle unexpected costs.

Enhanced Loan Appeal

Having extra small business capital funding from a ROBS plan can make your business more appealing to lenders and increase your chances of securing an SBA loan. Lenders are more inclined to approve loans for businesses with significant equity and lower levels of debt.

Utilizing a ROBS Plan To Secure an SBA Loan

Once you’ve established your ROBS setup in your new business, the invested capital can significantly bolster your SBA loan application. Lenders will notice that you’ve invested your own money into the business, which demonstrates commitment and mitigates their risk. Additionally, the extra capital can help you meet the SBA’s requirements for down payments and collateral, further increasing your chances of approval.

Using a ROBS plan is a strategic way to secure an SBA loan for your business. By tapping into your retirement funds, you can inject significant capital into your enterprise without incurring debt or penalties. This approach not only maintains your cash flow but also makes your business more attractive to lenders. While the process involves several steps, the benefits make it a worthwhile option if you’re seeking business funding.

Curious about the ins and outs of ROBS financing? Want to learn more about your financing options? Use Pango Financial’s funding solutions tool to arm yourself with the necessary knowledge.