ROBS Loans vs Traditional Loans

Benefits of a Rollover for Business Startup (ROBS) vs. Traditional Bank Loans​

Starting a new business can happen for many reasons. It can be a career shift to move out of corporate America or a dream you have had for a long time, and now you have the time to get it off the ground and the attention a new business deserves. 

 

When starting a business, loans are used to get your business off the ground and set you up for success. There are two loan routes you can take, one being the traditional bank loan, where you put up a substantial amount of collateral, and Rollover for Business Startups or ROBS loans. The difference between the two types is that the ROBS loan is taken from your own 401k that you have been paying into for years, whereas the traditional loan is either backed with cash or backed with your home. 

 

The decision on which one to take is up to you. As you get more educated on the process for each loan, you can make a more informed decision and make the decision that you know is going to be the best one for you and the future of your business.

 

Traditional Bank Loans

With a traditional bank loan to start your business, you will have to carve time out of your day to go to the bank and talk to a representative, tell them your idea, and hope to get approved for the loan or if you don’t want to drive all the way down to the bank you could handle it over the phone, but you will still have to hope to be approved for the loan. Banks will also require around a 20% down payment for your business, and for a $200,000 business, you are looking at $40,000 down on the day the loan is approved. Not many people have this amount of money just lying around, so the most common approach is to put your home up as collateral or some other high-value asset. This is very common and isn’t anything that should turn you away. All you need to worry about is getting your business off the ground and helping it to succeed. Once the loan is paid back, your home will no longer be used as collateral.

 

Rollover for Business Startups

These loans differ from traditional loans by quite a bit. Instead of going into a bank and borrowing from them with a ROBS loan, you are borrowing directly from yourself. You are borrowing the money out of your 401k that you have been paying into since you started working. Obviously, this comes with some hoops to jump through from the IRS to make sure that everything is done correctly and above board, and that is where we at Guidant can help guide you through the entire process to make sure nothing negative happens to you. This can be scary. Using your retirement that you worked hard to pay into your whole life is a gamble, but Guidant will make sure to ease your thoughts and help you understand the entire process. Once you have borrowed the money from your 401k account, then you can focus on your business and getting it off the ground and keeping it running.

 

Which one is the Best for You?

Which loan type is the best for you really comes down to your personal preference. If you don’t want to borrow against the 401k account that you paid into, then a traditional bank loan would be the best option for you to take. Going the traditional route will give you peace of mind that your retirement account will still be there waiting for you, even when you are making money from your new business. If you don’t want to put a high-value asset up as collateral, then you would want to go for a ROBS loan. A ROBS loan will give you the peace of mind that your high-value asset won’t be contingent on your business succeeding. Guidant will walk you through the process of taking out a ROBS and whether or not taking out the loan is for you after all. At Guidant, we want you to be fully educated about your options and make the best decision for you and the future of your business.