Top ForumsPrivate: My Community Webinars, Mega Backdoor Roth Solo 401k
Top ForumsROBS 401K Business FinancingJune 22, 2021 at 11:51 am
Hi George, hope you can provide some clarity…
Interested in investing in a business that will require 750K for the franchise fee, equipment, and startup capital.
Currently have 250K available in solo 401k that can be converted to ROBS 401k. (which represents 33% of the total funding required)
500K additional funds need it to start the business.
If I have the funds personally can I make them available for the business?
Top ForumsSolo 401k Contributions, Solo 401kJune 23, 2021 at 9:29 am
If you have the money to invest and have weighed the risk of this investment against other options, there’s nothing that I know of that would prevent you from channeling these funds into his corporation. If anything, your contributions would provide you with a greater share of the company’s ownership, giving you a more immediate return from future dividends and later distributions payouts. There may be some additional legal costs associated with the contribution and you’d want to enlist the help of counsel that’s well versed in Corporate formation matters but nothing, at least legally that I know of, would prevent you from making such an investment.
I believe your most significant risk is that
your funds will be tied up in the Corporation. You’ll want to make sure you
won’t miss these contributions. A hidden benefit of having debt is the power of
“leverage” or the ability to magnify the good times. Leverage is a double sided
coin as it opens exposure during the leaner times (the monthly payments won’t
go away). Even the healthiest and especially the rapidly growing businesses
must keep an eye on their “liquidity” and balance that against future growth.
Growth is great but is only a dream if the foundation isn’t solid.
Top ForumsROBS 401K Business FinancingJune 23, 2021 at 1:38 pm
Ryan, you are making a good point regarding this equity. Therefore could I use ROBS as a downpayment for business using SBA Loan. With a total investment of 750K If SBA requires 30% that is a 225K down payment that would be funded from the 401K. The remainder SBA financing amount at 525K. C-Corp would need to pay back that loan monthly within 10 year period. Will SBA be OK accepting such downpayment from ROBS 401K and financing the balance? Is that common or permitted under ROBS structure?
Top ForumsSolo 401k Contributions, Solo 401kJune 24, 2021 at 3:51 pm
As long as the business is “active” (which I’m sure it is) and as long as you’re not paying above market rate for the SBA financing (which I can’t imagine being the case),
it should meet the ROBS requirements. The ROBS typically doesn’t dive too
deeply into a Corporation’s capital mix. The only real concern I can see
if the end goal from the SBA financing is outweighed by any future liquidity
and leverage concerns that meeting this obligation would entail. This concern
would have to be blatant and unreasonable, in my opinion, for the ROBS’
requirements to be violated.
Yes sba will accept the down payment through the structure; however, just expect the sba to ask a lot of questions and clarification to make sure it’s properly recorded in the financial statements so they see it coming in as equity vs a loan from you as a shareholder or that will throw off your ratios in their eyes.
Top ForumsPrivate: My Community Webinars, Mega Backdoor Roth Solo 401kJune 22, 2021 at 1:24 pm
If you have the other $500k in personal funds, you can certainly invest in the C-corp and in exchange for doing so you will receive stock personally.
Top ForumsROBS 401K Business Financing
Top ForumsROBS 401K Business FinancingJune 23, 2021 at 1:56 pm@george
I thought of 2 questions after your reply…
1. If we have funds in Roth Solo 401(k). I hope I understand this correctly, they would be rolled into the new ROBS Roth 401(k). Can the plan allow to invest in Qualified Employer Securities (QES) from Roth 401(K)? or is it only allowed from Tax deffered 401(k)
2. If Roth 401(k) can be used for QES representing 250K can SBA be involved to provide 500K in financing in lieu of receiving stock personally?
Top ForumsPrivate: My Community Webinars, Mega Backdoor Roth Solo 401kJune 23, 2021 at 2:11 pm
1) Yes you can fund ROBS C-corp with Roth 401k funds
2) The C-corp can certainly use the ROBS 401K funds invested to obtain an SBA Loan. Please note this will be considered debt (not equity) such that no stock will be issued to you personally on account of the SBA loan (even though you are personally guaranteeing the SBA loan).
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