Using 401(k) to buy a business solves a lot of financing problems. Buying a business is a complex and, at times, frustrating exercise. The easy part is finding a business worth buying. The difficult part is jumping thru hoops to get the business purchase financed. Getting financing to purchase a business makes financing a home purchase look like a walk in the park.
If you are buying a business don’t overlook using a 401(k) without triggering a tax bill. There are CPAs who specialize in this investment vehicle. The IRS code currently allows, if structured properly, you to access your 401(k) without triggering income tax or early withdrawal penalties. Consult a qualified 401(k) business purchase rollover expert. Expertise is required to navigate complicated tax laws.
Your 401(k) and an SBA Loan from the Small Business Administration could provide the financing you need to buy a business and build the wealth that is often created when you own and operate a successful small business.
A typical financing structure when buying a business is (20% down often using a 401(k) to buy a business) 75% financing from an SBA loan and 5% financing from the seller.
Typical business acquisition loans are 10-year loans, with interest rates at prime + 2 3/4%. Terms can be improved, if the business purchase includes the purchase of real estate. Purchase of the real estate will significantly lengthen the term of the loan. This can also improve interest rates.
SBA loan terms are typically far better than terms from conventional financing. (When conventional financing is available and most times it is not). The SBA loan guarantee program is utilized by many banks who participate by making SBA guarantee backed loans to individuals and small businesses looking to acquire a business. Here is some info from SBA regarding this option.
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