How to Use Retirement Funds to Start a Business
What are some key steps business owners should take once they decide to use this strategy?
Stovall: You want to start a business within 12 months of creating the retirement plan and the corporation. You will want to take a salary from the business as quickly as you can. You'll want to let your eligible employees know there is a retirement plan and ask whether they want to participate. You yourself will want to make contributions into the retirement plan within three years or as soon as you can.
What do you say to business owners who are nervous about taking out their money?
Stovall: You're pulling your money from marketable securities and you're investing in yourself. You run the risk of losing money on the market or on the business you start. A lot of people are more confident with their own skill set than what's been happening in the markets for the last few years.
The fact that people don't have to use 100% of the money in their 401(k) or IRA also gives them the confidence they can still have something set on the side as a nest egg.
Are you seeing more inquiries, particularly as access to credit for small companies remains challenging?
Stovall: Yes, absolutely. The fact that money is so difficult to get makes people search more places to get it, but also the fact that franchisors, business brokers, consultants and the like are using our industry more and more just makes that many more inquiries come in. Even banks work with us because they understand people can use their 401(k) or IRA as an equity injection for a SBA loan that will get funded.
We help people open everything from auto repair shops to hair-cutting places to chocolate shops to liquor stores. So if you have a person that either is having trouble finding the money to start a business from external sources or wants to start a business and minimize their debt load or needs available capital as equity injection for the loan, we help solve a lot of problems.
We educate new people every week on the power they already hold. Not everybody knows about it. There are still a lot of people that have not seen the light, if you will.
What if the business fails?