Multi-Unit Franchisee Magazine Issue IV, 2013 | Page 66

By Dallas Kerley, Chief Development Officer

Successful Funding Strategies:
How to get the equity injection you
need to obtain a SBA Loan.
Benetrends has been helping people achieve the American dream of business ownership for more than 30
years. With so many options for funding a new business, entrepreneurs come to us to help them navigate
the many options and design the best funding program for their individual needs. One common concern we are often asked to address is “where can I get
the money I need for an SBA Loan”? Several requirements need to be met in order to obtain an SBA loan.
One of the most important is demonstrating that you
have sufficient “Skin in the Game”. Usually this means
that in addition to having sufficient collateral, lending
institutions want you to provide a 20% to 30% capital injection to qualify for a loan.  Entrepreneurs often
find they don’t have sufficient savings to meet this equity injection requirement and therefore need to look at
alternative sources for the funds. In light of this, two of
the more popular ways to acquire these funds, has been
using either 401(k)/IRA Rollover funding or a Securities Backed Loan.
401(k)/IRA Funding
In recent years, over 10% of franchisees have
used 401(k)/IRA Rollover funding as part of their
funding strategy.
It’s easy to see why Retirement Plan Rollover funding has become so popular. Due to the significant tax
advantages, many entrepreneurs have the majority of their savings locked
away in retirement plans
such as IRA’s and 401(k)’s,
which carry severe penalties and tax consequences for early withdrawal.
For example, if you have
$200k in an IRA or 401(k)
and take an early withdrawal, you may be required to
pay a 10% penalty and as much as 30% in ordinary income taxes, leaving you with only $120k of your original $200k. However, by employing a popular program
known as a 401(k) ROBS (rollover for business startup), those funds can be used to provide the required
capital injection for your SBA loan, both tax deferred
and penalty free. While this program when used in
conjunction with an SBA loan has proven to be a successful combination for funding a new franchise, many
entrepreneurs utilize the retirement plan rollover as

the sole method of funding their new franchise, thereby
avoiding the need for any type of loan.
Securities Backed Loan
Another popular strategy to acquire the needed capital for a loan, involves using a Securities Backed loan.
This type of loan is similar in concept to a home equity
loan, except the loan is backed by securities held in an
investment portfolio, rather than the equity in your
home. In many cases, this program makes more sense
than selling your stock to raise the needed capital for
your equity injection, because the cash needs are satisfied without disrupting investment strategies, asset allocations or creating unexpected tax consequences.
Securities backed loans have both favorable interest
rates and easy terms. Your credit score is not a factor in
qualifying for a loan, the interest rate is usually lower
than a home equity or SBA loan, you typically receive
an approval within 48 hours and the funds within ten
business days. There are other advantages to consider
as well: the investments in your portfolio remain in
your name and don’t need to be sold; therefore, you
avoid paying capital gains on your low cost basis stock.
You also can trade within your portfolio and you keep
all the appreciation and dividends from your portfolio as it grows. Maximum loan amounts ordinarily are
70% loan to value, so for example if you have a $200K
investment portfolio, you
would qualify for a $140K
loan. With these advantages, instead of selling
their investments when
they need funds for their
businesses, more and
more entrepreneurs are
holding on to their investments, allowing them
to grow and using this program to fund their business
needs.
This article addresses only two of the many different
strategies available to get you the funding you need for
your new business. Benetrends has proven and innovative funding strategies that make the most of opportunity, while minimizing risk and a legacy of success that
goes back decades. When you work with Benetrends,
you have the peace of mind, knowing you are working
with the best possible partner for taking your business
growth to the next level.

Article sponsored by BENETRENDS