If you’re thinking of different ways to get franchise financing, a rollover for business startup (ROBS) might be an option. It’s also known as 401(k) business funding. However, you must understand how it works and what to be aware of to make the best decision for you. Equally important, if you’re set on becoming a franchisee, partner with a reputable brand that will support you and help you make the most of your ROBS funding.

If you’re interested in researching costs and investing in an established mobile cleaning franchise, see our guide on how much it costs to start a car wash.

What is ROBS Business Funding

Rollover for Business Startups financing (ROBS) is when you take money from your retirement account to get your franchise or business up and running. So, it’s not like a traditional bank loan. Therefore, you don’t have to worry about increasing debt or high interest rates. And you don’t have to use your home as collateral. You are simply accessing money that you have already earned. 

This type of financing can be helpful if you’re exploring the benefits of franchising, such as a proven business model, training and ongoing support.

How Does It Work?

If you have a retirement account, ROBS could be a franchise funding solution or a way to launch your own business idea. This is the process:

• You set up a C Corporation (C Corp), which keeps your personal finances separate from your business. 
• The C Corp creates a new 401(k) retirement plan.
• You roll over funds from your existing retirement account into this new plan. This is where it gets its name, ‘rollover’, for business startup.
• The new 401(k) plan then invests in your C Corp’s stock. I.e., funding your new business or franchise. For example, you can pay franchise fees, buy equipment, and hire employees.

Before you start, it’s a good idea to create a franchise checklist to ensure you’re investing in a credible and profitable venture.  

No Early Withdrawal Fee 

Naturally, you may have concerns about accessing retirement funds early (before the age of 59 and a half) because of the tax penalties and 10% withdrawal fee. However, this isn’t the case with ROBS. You are reinvesting your funds, not withdrawing them. Therefore, you won’t be hit with an early withdrawal fee or penalty. This can save you thousands. 

401(k) as an SBA Down Payment

You can use a Rollover for Business Startup in combination with an SBA (Small Business Administration) loan if you don’t want to use all your retirement money to fund your business. Also, don’t forget that using your ROBS as an SBA down payment will be penalty-free.

Credit Checks Are Not Required

Traditional forms of financing or alternative lending check your credit score. For example, SBA-approved franchises usually have qualification requirements, such as a credit score of at least 680. It depends on the lender. If you don’t qualify for this type of loan or can’t get funding through a franchisor loan, a ROBS plan is worth looking into. You can get financing without a credit check. 

Furthermore, you can get your hands on the money quicker than some traditional bank loans or other lines of credit. If all your paperwork is in place,  Rollover for Business Startup funding can be available in under four weeks. The money is already yours, sitting in your retirement account. 

Grow Your Retirement Fund When You Use a ROBS

ROBS financing can lead to money-making opportunities, including the chance to build a bigger nest egg for when you officially retire. The rules of ROBS don’t allow you to be a silent investor. Therefore, once you start earning a salary from your new business, you’ve got to pay a percentage of this money into a retirement fund in your own company. 

This is a good thing. You are investing in yourself! As your business grows, so do your retirement assets. Also, a Rollover for Business Startups plan allows you to co-invest with franchise partners. For instance, you can combine retirement funds if you want to start a family franchise. 

Who Can Use a 401(k) Rollover for Business Startup?

If you have a 401(k), you may be eligible for this type of financing. However, to use ROBS funding, you must be the owner or prospective owner of the business you’re investing in. You also need to follow all the compliance steps, such as forming a C Corporation and setting up a new retirement plan within your new business. 

Best ROBS Providers

If you need help sorting out your business funding, you can partner with an experienced ROBS provider. Their services include:

1. Guide you on setting up a C Corporation and a retirement plan.
2. Handle IRS and Department of Labor compliance paperwork.
3. Clearly explain all setup fees and monthly costs.
4. Note, there is a setup fee for these services, which can be around $4,000 or $5,000.

Before choosing a provider, compare services, fees, and reviews. Look for strong customer support and experience working with franchise owners or small business startups. Here are some examples:

• Guidant Financial: Experienced in ROBS setups if you want to fund your franchise, with weekly updates throughout the process.
• Benetrends Financial: Another ROBS provider that’s been around for years, known for strong compliance support and franchise funding expertise.
• FranFund: Offers flexible funding solutions for franchisees, including combining ROBS with SBA loans.
• MySolo401k.net: It’s a lower-cost option because you’re guided through the process of setting up your C Corp, for example, rather than someone doing it for you. More suited if you have experience in compliance and the ROBS process.

The best ROBS company will be one that not only helps you stay compliant but also understands your industry goals, whether that’s launching a DetailXPerts mobile franchise or expanding your existing business. Talk to a franchise lawyer if you need advice on franchise laws and regulations.

Equally important, understanding the franchisor and franchisee relationship helps you align with your brand’s goals, follow its system, and enjoy franchise growth with long-term support.

Pros and Cons of ROBS Financing

Pros

• What is a ROBS plan? It is a debt-free financing solution, which might ease some of the stress in your first years of business. 
• Instead of budgeting for monthly loan payments and high interest rates, you can focus on growing the business and making money.
• Make the most of tax-saving opportunities: If you decide to take advantage of ROBS funding, you’ll get some tax benefits because your business will be set up as a C Corporation. So, you’ll pay a flat 21% corporate tax rate. And this can be lower than the top personal income tax brackets.

Cons

• You could lose some or all of your retirement money, which could be a huge blow to your future financial stability. That’s why it is so important to partner with a reputable brand with an excellent franchise business model.
• The strict regulations and compliance involve a lot of paperwork. If you don’t manage the process correctly, you could end up paying penalties.
• You’ve got to set up a C Corporation, which has setup fees and compliance costs.

Alternatives to ROBS Business Funding 

If you don’t have at least $50,000 in your retirement account or don’t want to use your savings, there are other ways to secure franchise funding aside from a traditional bank loan. For example:

SBA Loans

An SBA loan for franchise guarantees a portion of your loan that comes from banks or other financial institutions. However, you’ll need a solid credit history and an excellent business plan to be considered.

Financing Service Providers

A range of professional finance services is available. They can help guide and connect you to a network of lenders. Moreover, you can apply to multiple lenders at once. However, you may be charged much higher interest rates. So, as with any loan, study the repayment plan carefully.

Business Lines of Credit

A business line of credit works like a credit card. You’re approved for a set amount and can draw funds as needed. You only pay interest on what you use, making it flexible for managing cash flow, inventory, or day-to-day expenses.

Franchisor Financing


Some franchise brands offer in-house financing programs or have partnerships with lenders who understand their business model. For example, if you’re researching car wash financing, these programs can cover part of the franchise fee or equipment costs, often with more flexible terms than traditional bank loans.

Also, remember to review your franchise agreement, franchise disclosure document, and any franchise tax obligations before finalizing any funding decisions.

Conclusion

To sum up, you can use Rollover for Business Startups to finance your franchise dream. Benefits include ready access to funds and no increasing debt because you’re using existing collateral to make your money work for you. 

However, ROBS financing comes with a lot of compliance and paperwork. This isn’t an issue if you’re up to speed on the legalities of funding your business from your retirement plan. However, if you have the slightest doubt, seek the expert help of a Certified Public Accountant (CPA), franchise consultant, or ROBS provider.

At DetailXPerts, we know choosing funding is just as important as partnering with the right franchise. Our tried-and-trusted business model is successfully built around eco-friendly steam cleaning technology.  And we provide the training and ongoing support you need to get a great return on your investment.

Download our business model overview to learn more about our mobile cleaning opportunity.