Using 401k 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 the 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 401k 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.. A qualified 401k business purchase rollover expert should be consulted. Tax laws are complicated and require expertise to navigate.
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 401k 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%. These 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 and can also improve the interest rates.
SBA loan terms are typically far better than terms from conventional financing (when available and most times convential financing is not available). The SBA loan guarantee program is utilized by many banks who particiapte 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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