How a ROBS Plan Affects Your Business Credit Score

Starting a business can feel like taking a leap into the unknown—but hopefully, you’ve got a plan to soften the landing. For some, a Rollover for Business Startups (ROBS) plan offers an intriguing way to fund that dream. It’s a great option if you want to avoid loans or interest rates, but what does it mean for your business credit score? Here’s a breakdown of how a ROBS plan fits into your financial puzzle.

The Basics of ROBS

A plan from a ROBS 401(k) provider allows you to roll over your retirement savings to kick-start your business. You won’t trigger early withdrawal penalties, and you sidestep the need for traditional loans. It’s a creative and debt-free investment in your vision.

But here’s the thing: because you’re avoiding loans, you’re also bypassing the chance to immediately build a credit history tied to borrowing. That doesn’t mean there’s no impact on your credit score, but the effect is more indirect.

Building Credit Without a Loan

A ROBS-funded business starts off with cash, which means no monthly loan payments propping up your credit profile. To get that score moving in the right direction, you’ll need to take strategic steps. Open a business credit card, establish accounts with vendors that report payments to credit bureaus, and always pay on time.

Take, for example, a catering business funded through ROBS. If you regularly pay your food supplier within their terms, your vendor might report that positive payment history. Over time, that consistency can snowball into a healthy credit score.

Cash Flow Matters

One huge benefit of a ROBS plan is that it gives you breathing room. No loans mean less monthly financial stress, which can help with cash flow. A steady cash flow can, in turn, help you stay on top of paying bills and building a positive business credit record.

However, there’s always a flip side. If you don’t manage those funds wisely, the safety net of debt-free capital can vanish faster than expected. Imagine opening a gym and spending a big chunk of the ROBS money on high-end equipment. If you don’t leave enough for working capital, you might struggle with day-to-day expenses or late payments to suppliers, which brings your credit score down. It’s all about using that cash wisely.

ROBS and Future Financing

Even if a ROBS plan covers your startup costs, future growth might mean borrowing. When that time comes, lenders will look at your business credit profile. Without a loan history to lean on, they’ll rely on other indicators like payment consistency, vendor relationships, and credit card use. It’s smart to think about these factors now, even if you aren’t planning to borrow yet.

Wrapping It Up

A ROBS plan can absolutely affect your business’s credit score, but it’s not exactly an automatic boost. The good news? Building credit isn’t complicated if you’re thoughtful with your finances. Think of your credit score as the behind-the-scenes player supporting your business dreams. It might not be flashy, but it’s worth every bit of effort you put into it.

Want to get started with your ROBS plan? Learn more about how to leverage your retirement savings by using Pango Financial’s funding solutions tool.