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SBA Special Financing
The
SBA has announced that the special funding for loans with
the higher guarantee and reduced fees made possible by ARRA
are expected to begin again on Dec. 28 and will likely end
on February 28, 2010. Loan applications from borrowers who
chose to be placed in the SBA’s Recovery Loan Queue will be
funded first, followed by new loan approvals.
Additional funding for this portion of the SBA Recovery
Lending Programs is expected to support $4.5 Billion in
small business lending.
Using Your 401k or IRA to Finance the Purchase of a Business
With
help, you can use your 401(k), 403 (b), IRA rollover or
other retirement plan as capital to purchase a business
while not triggering a tax penalty. These transactions are
within the letter of the law as spelled out in the Employee
Retirement Income Security Act of 1974 (ERISA). The IRS has
issued determination letters validating many of these plans.
If you
just cash out your retirement account early, the premature
distributions are penalized and taxed as ordinary
income—resulting in a typical net of about only 50¢ on a $1.
However, certain provisions of ERISA do provide a way to
legally move money locked in 401(k) or other IRA rollover
accounts directly into a new or established business without
distributions, taxes, penalties or the use of loans.
To
set-up this plan does require outside help. There are
several companies that provide this service. Generally you
can expect the set-up cost to be in the range of $4,000 to
$5,000 with an annual maintenance fee of $800 to $1,000.
Obviously, the size of your 401k needs to be large enough
that these fees are not exorbitant as a percentage of the
funds being used.
There
are numerous firms that offer this service. Two of the
largest are BeneTrends Inc. and Guidant Financial Group (we
have no affiliation with either). We always suggest you look
at several providers before committing to one. Their
websites provide more detail on this subject:
http://www.guidantfinancial.com/products/small-business-financing/default.aspx
http://www.benetrends.com
Of
course, just because you can use your 401k as the source of
funds, does not mean that is the best way to finance a
business acquisition. Consider all your options (available
liquid assets, bank/SBA financing, home equity) before
committing to use your retirement account.
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