Financing Your Franchise with Retirement Savings

Many Americans, especially long-term federal government workers and those that work for large corporations, are forced to retire at age 55, well before they are no longer able to work. Workers are usually given a pension buyout and an attractive incentive package. The benefits of leaving usually make early retirement an offer that the worker cannot refuse. The worker is also given the option to “roll-over” deferred income tax, convert their company 401 (k) pension plan into another pre-tax qualified pension plan, or they can opt to take a lump sum, pay their penalties and taxes, and buy into another business. For many looking to extend their working productivity another 10, 20 or even 30 years, buying a franchise may be a good idea.

Using your pension money to fund a down payment on a franchise loan is no riskier than using most other means of financing a business. No matter where you get the money, it will have to be collateralized by some asset you own. The largest problem that can occur is if the business fails within a couple of years after the start up. You could be left with no money and no career to fall back on. Now you are 65 years old and where would you go and what would you do? There may be another idea where you don’t have to risk everything in order to buy into a franchise.

It is probably a better idea to seek finance for your new franchise from your own non-retirement nest egg savings, roll over your company plan and invest it in a diversified portfolio or treasury bills and keep it totally separate from your franchise company. Form a limited liability corporation to purchase a franchise and you might fund the corporation from selling assets, bank account and non-retirement savings account, loans or equity sharing from friends and family, and then look to the Small Business Administration for any other money that it takes to get the franchise up and running. No matter where the money comes from, you will sleep better knowing that your retirement savings are safe and there to provide you with an income if your franchise business goes under.