SBA loans are government-backed loans made through participating lenders. The most common type for startup businesses is the SBA 7(a) loan, which can be used for a wide range of business purposes including working capital, equipment, real estate, and business acquisition. SBA loans typically require the borrower to inject a meaningful amount of equity into the business — from 10% to 30% of the total project cost.
What You Need to Know
This is where ROBS fits naturally. Your rolled-over retirement funds can serve as the equity injection required by the SBA lender. Rather than coming out of pocket with cash you may not have, your retirement capital fulfills the equity requirement, and the SBA loan provides the remaining capital needed.
For example, if you are opening a franchise that requires $300,000 in total startup capital, you might use $100,000 from a ROBS rollover as the equity portion and obtain a $200,000 SBA loan for the balance. The ROBS funds are debt-free equity; the SBA loan is repaid over time with interest.
There are important considerations when combining these strategies. The SBA loan will require a personal guarantee, meaning you are personally liable if the business cannot repay it. You will also need to demonstrate creditworthiness and business viability to the lender.
When used thoughtfully, this combination gives entrepreneurs a robust capital structure: equity from retirement savings and debt financing from an SBA loan. Many franchise and business acquisitions are funded exactly this way.
Ready to Take the Next Step?
Ready to explore whether your 401(k) can fund your entrepreneurial dream? Contact Business Funding Trust today for a free consultation. Our specialists can walk you through your options, help you understand the process, and lead you to a successfully funded business.
