Start a Business or Franchise Debt‑Free

Thinking about how you can start a business but want to avoid traditional bank loans? You can leverage your retirement savings to fund your venture, legally, strategically, and without conventional debt. With IRS-approved solutions, your 401(k) or IRA can become a powerful tool to launch a business while keeping your retirement intact.

Two of the most effective paths are the Rollover as Business Startups (ROBS) structure and the 401(k) loan. Each option has distinct advantages depending on how much funding you need, whether you plan to work in the business, and how hands-on you want to be. Understanding these paths is the first step in choosing the strategy that aligns with your goals. Let’s break down how each approach works and when it’s the right fit.

Start a Business Without Debt

Option A: ROBS 401(k) — True “Debt‑Free” Equity Financing

The ROBS arrangement lets you use eligible retirement funds (401(k), traditional IRA, SEP, SIMPLE, 457(b)) to capitalize a new or existing C corporation, without taxes, penalties, or bank loans. Mechanically, you roll funds into the company’s new 401(k) plan; that plan then purchases stock in the corporation to inject cash for franchise fees, build‑out, payroll, inventory, or working capital. 

Why entrepreneurs choose ROBS

• Work in (and draw salary from) the business: properly structured ROBS allows you to be a bona fide employee earning a reasonable wage.
• No loan payments or interest, improving early‑stage cash flow and franchise viability.
• Flexible use of funds (including franchise fees and startup costs) within IRS rules.

What the IRS expects (compliance highlights)

• Use a C‑corporation (not an LLC or S‑corp) that sponsors a qualified 401(k).
• The plan buys qualified employer securities at fair market value.
• You must be an employee, and annual Form 5500 plus independent valuation are required.

These points come directly from the IRS’ ROBS compliance project and should be taken seriously to avoid disqualification.

Option B: 401(k) Loan — No Bank Debt, But It Is a Loan

A Solo 401(k) (or other qualified 401(k) plan with a loan feature) allows you to borrow up to the lesser of $50,000 or 50% of your vested account balance, generally repayable over five years with level amortization. There’s no bank underwriting or credit check, and the interest you pay goes back into your own retirement account, keeping your funds working for you.

Why entrepreneurs choose a 401(k) loan

• Fast, predictable funding for smaller needs like franchise deposits, equipment, or initial working capital.
• Avoids traditional bank debt, interest paid goes back to your retirement plan rather than to a lender.
• Minimal administrative burden compared with ROBS—ideal for those who want speed and simplicity.
• Flexible use within IRS rules, provided repayments and plan rules are followed.

Compliance highlights

• Must follow the plan’s loan rules: limits, repayment schedule, and interest requirements.
• Payments are made back to the plan on time to avoid taxes or penalties.
• Works best for owner-only businesses or as bridge funding, mixing with other funding is possible if properly documented.

While a Solo 401(k) loan doesn’t provide equity financing like ROBS, it’s a powerful, low-friction option for entrepreneurs who need smaller amounts quickly and want to avoid traditional lenders.

ROBS vs. Solo 401(k) Loan vs. SBA Loan: Quick Compare

Feature	ROBS 401(k)	401(k) Loan	SBA Loan
Bank debt?	No	No (plan loan)	Yes
Typical funding capacity	$50k–$500k+ (depends on retirement balance)	Up to $50k or 50% of balance	Often $50k–$5M
Credit check/collateral	Not required	Not required	Required
Monthly repayments	None	Yes (to your 401(k) plan)	Yes
Owner salary from business	Allowed (reasonable wage)	N/A to structure	Allowed
Entity type	C corp required	Any	Any
Compliance load	High (Form 5500 + valuation)	Moderate (loan tracking)	High (lender covenants)

Step‑by‑Step: How a ROBS 401(k) Funds a Franchise (Legally)

1. Form a C‑corporation that will operate the franchise.
2. Adopt a qualified 401(k) plan at the corporation.
3. Rollover eligible retirement funds into the new plan.
4. The plan purchases corporate stock at fair market value.
5. The C corp uses the cash to pay the franchise fee, build‑out, payroll, inventory, and other startup costs.
6. Operate and maintain compliance (run payroll; file Form 5500; obtain annual valuation; follow eligibility/coverage and nondiscrimination rules).

Eligibility note: Roth IRAs cannot be rolled to a traditional 401(k) for ROBS; most other tax‑deferred accounts can.

When to Choose ROBS vs. Solo 401(k)

Pick ROBS if you:

• Need more than $50,000 up front.
• Want to work in the business and pay yourself a salary.
• Prefer no repayments during early operations and are comfortable with ongoing plan administration.

Pick a 401(k) loan if you:

• Need ≤$50,000 for fees, deposits, or working capital.
• Want a fast, paperwork‑light solution (no bank underwriting) and can handle fixed repayments to your plan.
• Increase your interest rate to contribute more to the plan

Trying to use an IRA to buy and work in the business directly is generally prohibited due to self‑dealing rules; that’s why ROBS exists.

Compliance Guardrails (Don’t Skip These)

• Reasonable compensation: If you’re working in the business under ROBS, pay yourself a market‑rate salary, not distributions that bypass payroll.
• Annual filings & valuation: File Form 5500 and secure an independent valuation of employer stock each year.
• Coverage & eligibility: If/when you hire staff who meet plan eligibility, offer the plan and treat everyone consistently.
• Document everything: Board minutes approving the stock issuance, plan documents, rollover confirmations, and valuation report

How IRA Financial Helps You Execute

• ROBS 401(k) provider with specialists, ongoing maintenance, and IRS audit protection.
• Solo 401(k) with loan option, checkbook control, and a loan calculator for planning.
• Clear education: ROBS pros/cons, step‑by‑step guides, and small‑business retirement choices in one place.

Summary

Whether you’re launching a new business or buying a franchise, tapping your retirement savings can be a smart, strategic way to fund your venture without taking on traditional bank debt. ROBS 401(k) structures provide equity financing and let you work in the business while preserving cash flow, making them ideal for larger capital needs. 401(k) loans offer a faster, lower-friction solution for smaller amounts, with repayments going back into your own plan instead of a lender. Both paths are IRS-approved when properly structured and administered, giving entrepreneurs flexible, compliant ways to turn retirement assets into business opportunities.

Schedule a free consultation to size funding, pick the right path (ROBS vs. 401(k) loan), and map your compliance checklist. 

Frequently Asked Questions