Borrowing Money For Your Business? An Alternative to Family Funding

Post Date: November 23, 2016

You wanted to open your own business, but you didn’t have quite enough saved to make your dream a reality.

Enter your family (or friends) with a loan that will allow you to open your business. 

A year goes by, and while you’re making money, it’s not a lot, so the loan from well-meaning family goes unpaid.  

And now…it’s the holidays. There’s tension at the table, which can come from either side of the loan. Ill will due to a loan is not a new issue – even Shakespeare wrote of it in Hamlet.  

So why can loans from family and friends become an issue? 

    • They come with strings attached: Lenders may use the loan as leverage to get something they want in return for the money. And, oftentimes, it’s a price that the borrower may not want to pay.
    • The terms are ambiguous: “You can pay me back whenever.” It’s almost a certainty that whenever has an expiration date, and if you’re on the wrong end of that date, it becomes a problem.
    • Tax implications are possible: The IRS wants to be sure they receive their percentage. If a loan is truly a gift, proper documentation will save headaches down the road. And if, perchance, the lender is expecting payment with interest, the interest must be accounted for in the tax returns.

In order to avoid being ostracized at the next family outing, you need to look for funding options that will allow you to keep relationships intact, while still being able to fund your business. You may already have the funds, but never knew it was an option. 

If you have retirement funds, you can use those funds to buy a business. Known as a ROBS (Rollover as Business Startups), you can rollover the retirement funds into your own qualified plan, buy stock in your company, and use the funds to get your business running. Below is a short video explaining the four-step process.    

Benetrends is the pioneer of ROBS, (known as the Rainmaker Plan®), and for over 35 years has helped thousands of entrepreneurs successfully launch their businesses. A safe and proven plan, based on long-standing IRS provisions, the four-step process will allow you access to your funds, tax-deferred and penalty-free.  Schedule a consultation to learn more.

Categories: Blog

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