C-Suite Wednesday – Using ROBS Plans for SBA Financing

November 27, 2019

By Caity Witucki
Contributing Editor, C-Suite Wednesday

C-Suite Wednesday – Using ROBS Plans for SBA Financing

Rollovers as business start-ups (ROBS) are arrangements in which current or prospective business owners use their 401(k), IRA or other retirement funds to pay for new business start-up costs, for business acquisition costs or to refinance an existing business. Although using ROBS plans in conjunction with SBA financing can prove successful, preliminary results from research conducted by the IRS indicates that most ROBS businesses fail due to lack of compliance.

Research conducted by the SBA has also identified numerous issues related to using ROBS plans for SBA financing:

  • There is no designation within ETRAN or SBA One to flag ROBS deals.
  • The SBA is not aware of the volume of ROBS deals being done.
  • Lenders do not know if there is a ROBS involved in a deal.
  • The IRS may be causing the high rate of failures by penalizing borrowers who drop out of compliance.
  • Borrowers may not understand the implications that come with having a 401k plan as a shareholder in their business.

Lending institutions need to proceed with caution when working with ROBS plans. Under the current SOP, loans with ROBS attached must go to the center for processing and cannot be processed under the PLP designation. However, the SBA has not made a final decision as to whether they will be able to be processed GP or PLP in the future. New language regarding ROBS plans is expected to be in the new SOP slated for 2020.


Learn More:
What is the “ROBS” Issue? — a 75-minute webinar