When it comes to small business loans the majority of banks and
financial institutions are out of step with the needs of the
small business owners. They insist on tying their business
loans to assets such as brick, mortar, and equipment. All the
while, they ignore the fact that going forward businesses with
the greatest potential for growth will be those whose real
assets consist of the ideas, knowledge, and vision of the owners
and employees.
It is no wonder that entrepreneurs en masse are dropping the
conventional loan application routine for faster and easier
alternatives. Financing alternatives such as credit card debts,
home equity loans, and early withdrawals from IRAs have become a
major source of financing for business start-up or expansion.
However, credit card loans and retirement savings withdrawals
can be very costly if not handled strategically. For example, a
strategy to access capital from your retirement funds may be to
withdraw your money as a loan by setting up an Individual 401(k)
plan. Otherwise, a large part of your retirement distribution
may go to pay taxes and penalties.
Individual 401(k) plans with loan features first became
available in 2002, as a result of changes in the tax law. The
Individual 401(k) - also called a Solo 401k or Self-Employed
401(k) - is designed for small business owners without any
employees other than a spouse. Individual 401(k) loans are
generally easy to obtain, come with low interest, and are repaid
to the borrower's account. Loans from a 401(k) plan are also
free of tax and penalty as long as the loans are repaid.
You can borrow up to the lesser of $50,000 or 50% of the balance
in your Individual 401(k) account. You can also transfer
without dollar limit the funds from your IRAs, 401(k), 403(b),
or other retirement funds into your Individual 401(k) plan.
The Individual 401(k) is still new and not widely available. A
search on Google will give you a list of Individual 401(k) or
Self-Employed 401(k) plan providers.
Another financing alternative to consider is the SBA “low doc”
program for loan amounts up to $150,000. These loans can be
used to start or expand a business. Business owners are expected
to have good credit rating, but loans are not declined just
because of inadequate collateral. For more information visit
the SBA.gov website.
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Daniel Lamaute, http://www.InvestSafe.com. His firm assists
individuals who want to invest or withdraw their retirement
funds.