How to Use Retirement Funds to Start a Business
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? Stovall: Let's say there are two ways to start a business -- by using a 401(k) or with an SBA loan. If the business does great, you replenish the 401(k) or you pay off the loan. If the business fails the bank doesn't care, the bank wants its money plus whatever interest rate the bank is charging you until you've paid off that money. Also, the bank is probably going to do something to force you to declare bankruptcy or another adverse situation. By using your retirement plan, while you lost money -- this is true -- you can control the amount of money that you lose. And whatever money you can salvage you can put it back into a plan without taxes or penalty. It gives you a lot more control, even if things aren't going well. -- Written by Laurie Kulikowski in New York.
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