Will More Buyers Use Retirement Savings to Buy a Business?
You found a business worth buying. But you’re short on the money needed to close.
You have investors willing to help. Yet under new SBA lending rules, you may not be able to use all their money toward the required down payment. SBA acquisition funding rules
Your retirement account, meanwhile, has money sitting in it.
Could you use that?
A recent conversation with an SBA lender raised that very question: could the new funding limits lead more buyers to tap their retirement savings?
There’s a structure for doing it. It’s called ROBS, short for Rollovers as Business Start-ups. IRS explanation
But here’s the catch: you’re not just finding money to buy a business. You’re putting your retirement behind that business, too.
Here’s how it works, what can go wrong, and what to ask before committing your nest egg.
Why look at retirement money now?
The SBA change matters to buyers relying on certain outside investors to fund their contribution. Under the rules effective October 1, qualifying minority-investor money and certain deferred debt share a ceiling: together, they can cover no more than half the required contribution. Other eligible sources must cover the rest. That does not mean every buyer must fund the balance from personal savings. SBA source rules, Appendix 15
The practical problem: raising enough money and raising money your lender will accept are not always the same thing.
That could make retirement funding more appealing. It is a possibility raised in the lender conversation, not evidence that buyers are already flocking to it.
How does the money get into the deal?
Think of ROBS as your retirement plan becoming an investor.
In a typical setup, a new corporation establishes a retirement plan. Eligible funds from your existing retirement account roll into that plan. The plan then buys shares in the corporation, giving the corporation money it can use to buy the business. The corporation must be a C corporation, a specific corporate tax structure. IRS ROBS guidelines
You have not simply withdrawn your 401(k) and written the seller a check. Your retirement plan owns the shares purchased with those funds.
And this is not an automatic answer to the SBA funding gap. Have the lender review the actual arrangement before counting that money toward your deal.
The closing is only the beginning
ROBS comes with a retirement plan to maintain, not just paperwork to sign once.
The IRS flags problems with stock valuations, employee participation and required filings. A provider’s favorable IRS determination letter addresses the plan’s written terms. It does not establish that the plan is being run correctly. IRS compliance guidance
Before paying a provider, ask: Who handles the annual work? What does the ongoing fee cover? Who checks whether employees can participate? What happens when I sell the business?
“We’ll set it up” is not the same as “Here’s how you’ll maintain it.”
What happens if the business struggles?
Imagine a major customer leaves six months after closing. Collections slow. Payroll does not. You stop paying yourself to keep the business afloat.
Now your income and the retirement money invested in the company are exposed to the same problem.
The IRS’s historical ROBS project reported business failures and lost retirement assets. Those findings are a warning, not a current failure rate you can apply to every acquisition. IRS project findings
The question is not simply whether ROBS gets you to closing. It is what remains if the business disappoints you.
Three questions before you commit
Would I buy this business without access to my retirement account? If the deal only feels attractive because you found another pocket of money, revisit the price and the business itself.
Who has reviewed the whole structure? Get the lender, acquisition counsel and qualified tax and retirement-plan advisers aligned before treating the funds as available.
What will I have left? Model a bad first year. Include operating cash, household expenses and ongoing plan costs. Identify the accessible cash and retirement savings that would remain outside the business.
ROBS is a funding tool, not a reason to buy. Closing the gap matters. So does having a financial future beyond the deal.
Tolbert Legal advises business buyers on transaction structure and the legal decisions from LOI through closing. Discuss an acquisition.
General information only. Not legal, tax, accounting, retirement-plan or investment advice.
Buying a business? Know what comes next.
Join me and SCORE Los Angeles on October 22 for a free workshop covering the path from your first offer to closing: what to investigate, how financing affects the deal, and which contract terms deserve attention before you sign.
Thursday, October 22 · Noon–1 p.m. Pacific · Free online workshop
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