How to Choose a 401(k) Business Financing Provider

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401(k) business financing provider

An increasingly popular financing method for first-time small business owners is 401(k) business financing, also known as the Rollover for Business Start-ups (ROBS) arrangement. When learning how to choose a ROBS provider, it is essential to carefully consider these five traits:

  1. Industry Experience. ROBS is a seemingly complicated transaction, but doesn’t have to be when working with a provider with proven industry experience.  The 401(k) business financing provider you choose should be able to supply both accurate information and efficient results.

    When looking for a provider, ask about the number of ROBS transactions their firm performs each year and how long they’ve been in business. The best firms perform more than 1,000 rollovers per year, have at least a 10-year track record and employ subject-matter experts who can share advice based on their past experiences working with entrepreneurs.
  2. No Hidden Costs. The last thing you need when building a business are surprise expenses from your financing partner. Look for transparency in pricing and make sure the firm provides audit protection, legal consultation, business valuation and record keeping services as a part of their costs.

    With all third party providers — you get what you pay for. If you only want a firm to complete the ROBS transaction with no additional services, a low-cost firm may be okay to go with. However, if you want long-term support for your business — valuable for all entrepreneurs —investing in a high quality financing partner up front can mean sustained success for your business.
  3. A Reliable Timeline. From the time you first engage with a ROBS 401(k) business financing provider, they should be able to share their process with you in detail. Ask for a timeline to complete the transaction as well as any barriers that can slow the funding process. They should also have information about state filing timelines, which vary greatly. An experienced firm can assist you in completing the rollover on an average of three to four weeks, with the potential to rush the process if expedited funding is needed. However, if a firm is claiming a timeline of 10 days or less, you may be let down when they don’t follow through on that promise.
  4. Audit Protection. As a part of funding a business through the ROBS arrangement, your new corporation will sponsor a 401(k) plan. Although rare, all 401(k) plans have the chance of being audited by the DOL or IRS. A quality firm will protect their clients in the case of an audit, and an even better firm will pay for their client’s legal representation. It may sound tempting to work with a firm with no history of an audit, but this is likely a sign of inexperience. A better trait to seek out is a spotless audit record with no taxable events occurring as a result of the ROBS arrangement.
  5. Full Suite of Financing Options. A ROBS provider should truly be your partner in business and have the ability to support your venture as it continues to grow. Working with a firm with diverse funding solutions can mean the ability to increase buying power initially or further down the road. Other financing options your ROBS provider should offer include Small Business Administration (SBA) loans, unsecured loans, and working capital loans.

Trust Your Gut. Above all, the company you put your trust in to complete your ROBS transaction should give you confidence as a new business or franchise owner. One of the best tips when learning how to choose a ROBS or 401(k) business financing provider is to choose a provider that has exceptional customer service and can answer your questions quickly and thoroughly. More than ever, your peace of mind is important when starting your new venture. Working with the right provider means you’ll be one step closer to long-term success.

Learn more tips to choose the right ROBS provider.

David Nilssen is the CEO & Co-founder of Guidant Financial, which helps individuals secure small business funding to start, buy or grow a business with 401(k) business financing, SBA loans and more. Read more tips about finding and financing your business on the Guidant blog at guidantfinancial.com/blog.

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