Using 401(k)s to fund franchises

Posted on July 21, 2010 by Franchise Gator Admin

For older entrepreneurs, starting a franchise can often be the culmination of a lifelong dream. While many have worked for other companies, the latest franchise opportunity can be far more attainable than previuosly thought. The reason - retirement funds.

Jeff Elgin of Entrepreneur magazine suggests that one of the best ways to get past the difficult lending climate is to use money saved up over the years in retirement savings in order to open a business without getting into any substantial debt. The government has rules for accessing 401(k) accounts early that all potential franchisees must follow.

Elgin writes that interested parties can "borrow up to 50 percent of your account or $50,000, whichever is less. You do have to set up a regular repayment plan (including paying interest on the outstanding loan balance at a reasonable level,) but getting this much money on this basis is usually very easy to accomplish. Contact your 401(k) plan administrator to learn the specific rules for your plan."

A few years ago, Don Poffenroth and Kent Fleischmann both used savings from their 401(k)s to start their own business. USA Today reports that the two businessmen successfully turned the funding into a profitable vodka distillery business.