The 401(k) Solution: Start-Up Funding You Didn’t Know You Had
November 28, 2012 // Franchising.com // The client came to Financial Consultant Diane Rosenkrantz with a big vision: he wanted to start a DVDNow Kiosks business with nine or ten automated movie rental machines. The price tag was in excess of $200,000.
All he needed to get it off the ground was financing. His finances were in good shape but he didn’t want to deplete his cash reserves or take out a loan. Rosenkrantz and her company Tenet Financial Group helped the client gain access to start-up funding he didn’t know he had: a 401(k) plan from his previous employer.
“You are allowed to access your 401(k) or Investment Retirement Account (IRA) funds with no taxes, no early-withdrawal penalties and no payback requirement, as long as you adhere to Internal Revenue Service (IRS) guidelines,” said Rosenkrantz, adding that this method does not apply to 401(k) funds with a current employer, and is only advisable if you have $30,000 or more in a plan.
“We were able to help the client roll over the money as start-up capital for his new business. He had other options, but by accessing a portion of his retirement funds, it enabled him to go into business debt-free and equity rich,” she said.
Rosenkrantz helped the client set up his business as a C Corporation, and then they rolled over the money from his previous 401(k) plan into a new 401(k) for his business. “Essentially, you are using the funds to buy shares of stock in your new business,” she said.
“There are so many financially savvy people out there who don’t know this is possible. And it’s not just for starting a business either. You can also recapitalize or expand your business this way,” said Rosenkrantz.
Commonly referred to as a Rollover for a Business Start-up, or ROBS for short, this transaction requires stringent adherence to government rules or you could face taxes, penalties, or both. A qualified plan specialist or third-party administrator like Tenet Financial is recommended to facilitate the process.
For the DVDNow Kiosks customer, it enabled him to launch his business, his way, using some of his retirement funds to live his life now, instead of taking on unnecessary debt.
“With our business, you create economies of scale by having more than one DVDNow kiosk because adding more kiosks only makes a marginal difference to your workload,” said Scott McInnes. “The 401(k) solution provided by Tenet Financial has helped our clients build networks of kiosks and realize their visions for the business, without going into debt or becoming cash-poor. For some people, it’s a great way to finance their business.”
Another start-up option: Get an unsecured line of credit
If you don’t have a retirement fund, or can’t access it because it is held with your current employer, Rosenkrantz said you could also consider getting an unsecured line of credit.
The benefit of an unsecured line of credit is that you don’t need to put collateral such as your home on the line, and no financials are required.
What you’ll need to quality:
- A credit score of 700 or more
- A good credit history with no liens or bankruptcies and no or very few late payments
- Reasonable credit use i.e. you aren’t carrying too much debt on other lines of credit.
“We aim to the get the client as much credit as possible by accessing multiple lines of credit. Usually, it is at a zero percent rate of interest for up to 18 months,” Rosenkrantz said, adding that she was recently able to qualify DVDNow Kiosks clients for $61,200, $73,000 and $88,300 in funding.
If you have a spouse or a partner in your business, you may be able to pool your resources and qualify for more.
Some DVDNow owners use a combination of both: accessing some of their retirement funds combined with unsecured lines of credit to expand the possibilities and potential of their business, she said.
“Which strategy is best depends on the person, and their ultimate vision for the business,” said Rosenkrantz.
About DVDNow Kiosks
DVDNow launched in June of 2006 and quickly became the leading provider of independently operated DVD rental kiosks. Today, with operations in over 16 countries, DVDNow has the largest independently operated DVD rental kiosk network in the world.
DVDNow Kiosks, Inc. www.dvdnowkiosks.com 1-877-849-4272 x714
About Tenet Financial Group
Tenet Financial Group specializes in funding solutions for entrepreneurs and franchise owners who want to capitalize their businesses. With a combined 75+ year’s experience in financial services, Tenet consultants have been helping clients throughout the U.S. since 2008. The Company has become a preferred referral partner with many franchisors and franchise consultants/brokers. For more information, email firstname.lastname@example.org or call 1-888-901-3335 x 9 option 2 or visit www.tenetfinancialgroup.com.
DVDNow Kiosks, Inc.
1-888-901-3335 x 9 option 2