SBA loans are a great option that allow franchisees to use their 401k rollover to finance their franchise. Franchisees should only use a reputable, experienced company to complete this transaction.

After leaving a former employer, a franchisee can take their qualified 401k and start their own company/entity. That company will offer a retirement plan, and the franchisee will buy shares of their own company with their retirement. They aren’t actually pulling money out of their retirement plan even though they’re using the money. They’re using the money as an equity investment. So instead of buying Disney, Comcast, or Tesla stock, they’re buying their own stock.

There’s a short-term advantage in that they aren’t paying the withdrawal fee and current income tax on the money, but they are creating a long-term vehicle in which they can then reinvest the dividends. There are some tax advantages, and if they hit it big, there are tax advantages to get all that money back into their 401k.

While there is a risk to rolling over one’s 401k, this is a valid way of financing for your franchisees. As a franchisor, you should be aware that this is a legitimate and quite common option. You can suggest this as an option along with funding or accounting recommendations. If you do not have any, it is not uncommon for a candidate’s consultant to have referrals. Reach out to the Client Relations team for personal referral introductions.