ROBS, or Rollovers-as-Business-Startups, are a unique way to fund your business without taking on debt or giving up any ownership in your company. This strategy allows you to use funds from an existing retirement account to invest in yourself and your new business.
ROBS is an excellent option for many people, and there are many pros and a few cons to consider when using this funding option. Still, it can be a great way to get started if you have a knowledgeable provider like Benetrends to help advise you along the implementation.
This article will cover the pros and cons of using ROBS so that you can make an informed decision about whether it’s the right funding option for you and your business. We’ll also discuss how to get started with ROBS and what steps you need to take to leverage this type of funding. So if you’re considering ROBS to fund your business, read on to learn more about the benefits and drawbacks.
Let’s dive in:
What is a ROBS plan or program, and what are the pros of using one to start a business
A Rollovers-as-Business-Startups (ROBS) plan or program is an ideal solution for entrepreneurs wanting to use existing retirement funds to finance the launch of a new business. Utilizing this strategy eliminates the need for large sums of money upfront, thereby easing the financial strain that typically accompanies getting a new venture off the ground. It also keeps debt levels low and helps protect retirement savings from depleting.
Another pro of a ROBS plan or program is that it accelerates the time it takes to get a business up and running, as funds are usually more quickly obtained than if you had to take out loans from other financing sources. Furthermore, this type of funding may be easier to secure than traditional startup capital because investments are made within retirement accounts. All in all, a ROBS plan or program can be an invaluable tool when starting your own business.
The Pros of ROBS:
- Enable entrepreneurs to capitalize on their retirement funds penalty-free without having to risk the collateralizing of their home, as with traditional loans.
- Bypass the need for debt payments and credit score requirements while still allowing them to invest in themselves and not the stock market.
- Accrue certain tax benefits that come with such investments, such as being able to use retirement funds as the down payment on a loan.
- Save time and money by avoiding complicated paperwork, application processes, and loan repayment cycles associated with other forms of business funding.
- Receive more flexibility when it comes to making adjustments on investments that are more difficult or impossible with other financing options.
- Create additional sources of income over time through compound interest rates that would not have been possible without these types of plans.
What are the cons of using a ROBS plan or program, and how can you mitigate them
Potential cons of a ROBS plan or program include:
- Investing your funds into a business means they are out of the market, so in a rising market you miss out on the growth.
- If the business fails, you risk losing the retirement savings invested in the ROBS. (fortunately, these losses are pre-tax)
- The business must be a C Corporation which may require more strategy and planning to avoid potential corporate tax.
While the ROBS can be an investment opportunity for small business owners, it pays to remember that due diligence is essential for success. Small business owners should know about the ROBS structure and seek professional advice when negotiating a contract. Additionally, business owners should research potential tax implications from this type of financing strategy.
When should you consider ROBS?
ROBS can be a great way to start a business if you have existing retirement funds that need to be tapped into. Since ROBS involve using your own money to fund your new venture, it may provide more flexibility and control than other types of financing options. Plus, if you don’t have a stellar credit score, ROBS can be a great option because they don’t require any credit checks or collateral. Ultimately, whether or not ROBS is the right financing vehicle for your business will depend on your individual needs and situation.
How to use ROBS in the right way
A Rollovers-as-Business Startups (ROBS) plan might be the right solution if you want to start a business. A ROBS plan offers a way to invest retirement funds in your own business without paying taxes or early withdrawal penalties. Working with an experienced partner like Benetrends is one of the best ways to ensure that your financial decisions are sound and that all necessary legal and compliance requirements are handled correctly. With 40+ years of experience helping entrepreneurs secure funding, Benetrends can help guide you through the ROBS process and structure your business properly so you can confidently pursue your business endeavors. Put simply, with ROBS, pursuing entrepreneurship doesn’t have to be a daunting process – it can be an exciting opportunity!
If you’re interested in learning more about how a Rollovers-as Business-Startups (ROBS) plan could help you start your own business, contact Benetrends today for a free funding consultation. With over 40 years of experience assisting entrepreneurs to secure funding, we can guide you through the process and help make sure that all necessary legal and compliance requirements are handled correctly. Let us help you take the next step on your entrepreneurial journey. Check out our article on the 3 dos and don’ts of ROBS funding to get started!