No one ever said that starting a new business is easy, especially entrepreneurs who struggle to finance their new ventures. Typically, banks won't lend to businesses without an operating history, forcing entrepreneurs to put their personal finances at risk by using personal savings, tapping their home equity, borrowing from their retirement plans, or taking out expensive personal loans.
That's why ROBS (Rollover for Business Startups) have emerged as a practical financing alternative. When executed properly, ROBS are a way for entrepreneurs to invest their retirement savings into a new business venture without incurring taxes, early withdrawal penalties, or loan costs.
A ROBS transaction can be extremely complicated to execute, which is why it's essential to work with an experienced and competent provider. While there are plenty of ROBS providers to choose from, most offer a similar product with similar fees and support, making it difficult to determine what sets them apart. We reviewed 12 providers based on service, cost, reputation, and more to find the best in six different categories.
Best Overall ROBS Provider : Benetrends
With the highly complex nature of ROBS transactions, experience counts. Benetrends has been completing ROBS transactions since 1983 with top-tier services, making it our choice for the best overall ROBS provider.
Longest track record of ROBS transactions
Extensive exposure in franchise space
Audit Shield protection
Wide range of loan options for additional financing needs
Setup fee is at the high end of the peer pricing spectrum
Established in 1983, Benetrends is considered a pioneer in the ROBS space. Having facilitated over 17,000 transactions, Benetrends has probably seen it all, making it our choice for the best overall ROBS provider. When dealing with a complex transaction under myriad, strictly enforced IRS and DOL guidelines, that experience can be crucial. Also, with the majority of its business coming from franchisees, Benetrends is also a good choice for franchise funding.
As with many of its top competitors, Benetrends starts its application process with a free consultation, allowing applicants to get all the information they need before starting the process. Once the application process is complete, the rollover takes place under Benetrends' Rainmaker Plan and you can get your funds in as little as 10 business days.
Throughout the process, Benetrends' clients have access to an in-house team of certified professionals, and post-transaction, Benetrends supports its clients with ongoing plan maintenance to ensure it remains compliant with reporting guidelines. Clients are reassured with Benetrends' Audit Shield protection and the knowledge that no plan has ever been disqualified.
Benetrends also offers a comprehensive suite of funding options that can be accessed separately or in conjunction with the Rainmaker Plan, including SBA loans, credit lines, equipment leasing, and conventional business loans.
Best Customer Support : Guidant Financial
Guidant Financial blankets its customers with support, starting with free consultations upfront and full, no-cost access to outside counsel throughout, making it our choice for the ROBS provider with the best customer support.
Experienced ROBS provider
Extensive pre-transaction consultations
Contractual guarantee of free audit support
Extensive network of lending partners for additional financing needs
Pricing is a bit on the high end
Operating since 2003, Guidant Financial is one of the more established ROBS providers. Additionally, they now do more transactions each year than any other provider. That experience shows with the superior support it provides before and throughout the process, including its free access to outside counsel at any time. For that, Guidant makes our list as the provider with the best customer support.
Guidant's application process begins with a free consultation during which applicants can get answers to all their questions. Applicants and clients also have access to attorneys throughout the process at no extra charge. Funds are typically available in as little as three weeks.
Once the ROBS transaction is complete, Guidant can act as your administrator or you can hire a third-party administrator (TPA) for ongoing compliance support and Form 5500 filing. When the business is ready to be sold, Guidant is there to ensure the retirement plan is closed down properly and rolled into an IRA. That includes the preparation and filing of the final Form 5500.
Guidant boasts the lowest audit rate in the industry. Clients are guaranteed free outside counsel if they become subject to an audit.
Guidant also supports its clients with a full regimen of lending options when additional financing is needed, including SBA and unsecured loans and equipment leasing. Guidant charges a $2,500 consulting fee for helping clients through the entire loan process. The fee is waived if you also sign up for a ROBS or if your loan is over $200,000
At $4,995 setup fee is at the high end of the pricing spectrum, but customers do receive more extensive consultations in the setup process. Its ongoing monthly fee of $139 for compliance support and IRS filing is within the middle range.
Best Value for the Price : Pango Financial
With a complete end-to-end funding package offered at a lower cost than most competitors, Pango Financial makes our list as the best value for the price.
Fees lower than most competitors
Online access to the ongoing maintenance process and retirement plan management
Broad access to additional financing options
No mention of audit support
Founded in 2005, Pango Financial combines its full-service ROBS implementation with digital technology and its highly competitive pricing to offer entrepreneurs the best value for their money.
Using Pango's Compatibility Checker tool, clients can determine if the DreamSpark 401k rollover plan is right for them. Pango then engages directly with its clients each step of the way through plan implementation. Pango will even help with the incorporation process, which can accelerate the overall funding process. Funding typically takes place within two to three weeks, depending on the state of incorporation.
Once the transaction is complete, Pango provides its clients with in-house expertise and 24/7 online access to their plan maintenance so they can follow Form 5500 preparation, compliance testing, eligibility tracking, and plan reconciliation. However, there is no mention of audit support.
Pango also helps its clients design a retirement plan based on their employee participation and the business owners' financial goals. Clients can then use their online access to monitor retirement plan participants.
Another strength of Pango is its well-established network of lenders to help clients gain access to additional financing should it be necessary. That includes traditional lending options along with SBA loans, equipment leasing, and non-bank lending options.
At $3,995, Pango's setup fee is $1,000 less than its top competitors. Its ongoing monthly maintenance fee of $110 is also among the lowest. Pango backs its services with a money-back satisfaction guarantee.
Best for Sole Operators : Business Funding Trust
Business Funding Trust has built its expertise on helping individuals fund their business using money from their retirement account. This helps people avoid bank loans, high interest, withdrawal fees, and taxes.
Focus on those who don't need ongoing support
No ongoing monthly fees
$1,500 Federal Tax Credit available
Setup fee is a little on the high end (but there are no monthly fees)
No additional financing options
Since its founding in 2003, Business Funding Trust has offered individuals a simplified base plan for setting up their ROBS. If you have employees, they provide you with support materials to do it yourself. While Business Funding Trust does not provide ongoing maintenance support, it does provide clients with a complete plan administration binder.
The self-guided binder is tailored to the client's needs based on an initial consultation that occurs in the application process. With the binder and the help of an accountant, sole operator clients have all they need to maintain the plan. Business Funding Trust charges $4,950 for setting up the plan and completing the rollover transaction. That's a little on the high end, but clients save money in the long-term due to no ongoing monthly fees.
Business Funding Trust has a unique payment structure, allowing clients to pay the ROBS setup fee after the transaction is complete. That way, clients can have the new business pay for it, allowing the business to claim a $1,500 tax credit over three years.
Best for Franchise Funding : FranFund
FranFund was established by franchise owners and conducts the vast majority of its business with aspiring franchise owners, making it our choice as the best provider for purchasing a franchise.
Long track record of working with franchisees
SafetyNet Program allows applicants to get a head start on funding
Discount for veterans
Ongoing monthly fee on the high end
FranFund was founded by former franchise owners with an eye toward helping aspiring franchise owners realize their dreams. That commitment, along with its long track record of securing financing for franchise owners, makes FranFund our choice as the best provider for franchise businesses.
FranFunds application process starts with a free consultation to determine the specifications of an applicant's needs. With FranFund's no-risk SafetyNet Program, applicants can roll over their retirement plan money at no cost. This gives the funding process a head start as applicants complete the remainder of the ROBS setup, with funding available in as little as 10 days. Applicants are under no obligation to complete the setup with FranFund.
Once the rollover is complete and the FranPlan is implemented, FranFunds provides an in-house TPA with a dedicated TPA associate to manage the plan and ensure it remains in compliance with IRS and DOL guidelines.
FranFund works with a broad network of SBA and traditional loan providers to help clients obtain additional financing.
FranFund claims that less than 1% of its plans have been audited by the IRS or DOL with no disqualifications. However, if your plan is subject to an audit, you have the full support of FranFund's staff, including ERISA and tax attorneys.
FranFund charges a setup fee of $4,795 (discount available for veterans) and an ongoing $130 monthly fee. Their ongoing support includes audit support, IRS Form 5500 filing, and plan eligibility tracking and notification.
Best Low-Cost Option : MySolo401k
MySolo401k's initial consultation, setup process, guidance, and ongoing support are on par with its peers, yet it charges $1,000 less for a setup fee and around $75 a month for ongoing support (waived for a year), making it our choice as the best low-cost option.
Lowest setup and ongoing fees
As a leading 401k plan provider, it has strong ERISA expertise
Excellent reputation in the small business arena
Offers only one additional financing option (SBA loans)
Founded in 2009, MySolo401k is well-known in the small business arena as a leading provider of solo 401k retirement plans. So, using 401k plans to fund business startups is a natural extension. But MySolo401k has found a way to offer its ROBS services for a much less expensively than its peers than its peers, making it our choice as the best low-cost option.
For the lower cost, MySolo401k does not sacrifice quality. It offers the full range of service, guidance, and support offered by its top peers. With a complete in-house team of compliance experts and attorneys to assist clients from the initial consultation to setup and beyond, MySolo401k excels at customer support. It also has outside counsel standing by should any client run into audit trouble.
The one downside for MySolo401k is its limited availability of additional lending options should additional financing be needed. Currently, MySolo401k only works with SBA lenders, which may be limiting for small businesses that can't meet SBA requirements. This option is additionally a bit difficult to even find on their site. However, MySolo401k is an expert at working through the requirements.
At $4,000, MySolo401k's setup fee is up to $1,000 ($2,000) less expensive than many of its competitors. It charges $899 annually ($74.92 monthly) for ongoing support, which is also $50 to $60 cheaper per month than most competitors. For each additional employee over 10, MySolo401k charges $75 annually. Also, because MySolo401k says there is little in the way of ongoing maintenance needed in the first year, it waives the ongoing fee during year one.
What Is a Rollover for Business Startups (ROBS)?
A ROBS (Rollover for Business Startups) is an IRS-sanctioned process for using your retirement savings to invest in a business startup without incurring taxes, early withdrawal penalties, or loan interest. A ROBS provider facilitates converting your retirement account into a business funding vehicle by rolling retirement funds into a separate IRA. ROBS providers work with separate custodians to house your IRA.
To use a ROBS, a business needs to be structured as a C-corporation so it can purchase stock in the new company from its retirement account. This approach has many advantages over traditional funding methods, including:
- Funding in as little as 10 days
- Credit standing and financial circumstances are not a factor
- Because it's not a loan, businesses can achieve break-even more quickly
- Business owners are able to build wealth with a tax-deferred plan while creating equity in the business
When Is a ROBS a Good Idea?
Generally, a ROBS is a good idea for entrepreneurs who are confident in their ability to grow a successful business. While anyone can use a ROBS to fund a business startup, they work best for entrepreneurs who have enough money in their retirement accounts so as not to risk their financial future should the business fail.
However, if you can live with that risk, then a ROBS is a good option because it can lower the financial risk for your business. That's because there are no loan costs or payments that can make it challenging to grow your business. A ROBS is also an excellent option if you don't have the credit standing, or you don't want to risk the personal collateral to qualify for a loan.
More than most funding options, a ROBS comes with onerous IRS and DOL rules and restrictions requiring strict compliance for as long as the plan is in place. That could be more than many people want to take on, but it is made much easier by working with a ROBS provider.
To be eligible for a ROBS, business owners must be actively involved in their business. A ROBS doesn't work very well for passive businesses.
How Do You Set Up a ROBS?
The process for setting up a ROBS is relatively standard regardless of which ROBS provider you use:
- Choose a ROBS provider: Setting up a ROBS can be extremely complicated, generally not suited for do-it-yourselfers. It would be best to choose a ROBS provider first because they are there to help you in the setup process.
- Form a C-corporation: Because a ROBS involves a stock purchase, the business must be structured as a C-corporation. Each state has its own requirements for creating a C-corp, but in all cases, you will need to apply for an employer identification number (EIN). Some ROBS providers will help you in this process.
- Establish a qualifying retirement plan: You will need to create a retirement plan that will receive the rollover funds from your old retirement plan. You can pick the plan design that works best for you and your eligible employees. Some ROBS providers will help you design the most suitable plan, and most will help you prepare a plan adoption agreement. Most providers will help you find a plan custodian.
- Transfer funds: With your new retirement plan in place, you can then transfer funds from your old retirement plan. The minimum transfer amount suggested for a ROBS is $50,000. Your ROBS provider will facilitate this step.
- Have your retirement plan purchase your company's stock: Sell enough shares to your retirement plan to generate the needed funding. You can sell all or a portion of your company's ownership to the plan. Your ROBS provider can help you facilitate this step. Your retirement plan, along with its participants, becomes a shareholder.
- Invest in your startup: Your company now has the funds to pay for startup costs.
What Do ROBS Cost?
Based on our review of a dozen providers, the cost of a ROBS transaction can range from $4,000 to $5,000. That's for the setup. There are also monthly fees to cover ongoing support and maintenance, including IRS reporting, eligibility tracking, and plan reconciliation. Those fees can range from $75 to $140 per month. Some providers charge a base monthly fee for a maximum number of employees and then add a charge for additional employees.
How We Chose the Best ROBS Providers
We looked at a dozen of the top ROBS providers for our initial review with consideration for track records and industry experience. We then narrowed the list further by comparing total costs as well as the value provided for those costs. The level of setup assistance and ongoing support were also important considerations, along with the availability of additional financing options. Each of our finalists excelled in one or more of those areas.