Benetrends Financial Review

Benetrends Financial has offered rollover for business startup (ROBS) plans since 1983, so if you’re considering tapping your 401(k) to start your own company, Benetrends Financial could be a good choice to help you set one up and maintain it. Still, there are some risks to investing retirement funds into a new venture — we’ll explain how ROBS plans work and walk you through other types of small business financing offered by Benetrends Financial.

What does Benetrends Financial offer?

Benetrends Financial’s flagship offering is its ROBS plan, which it calls the Rainmaker Plan, but it also offers SBA loans, securities-backed lines of credit and conventional term loans, which we’ll discuss later.

Rainmaker Plan: at a glance

• Set-up fee: $4,995
• Monthly fee: $145
• Funding in as few as 10 days

A ROBS plan is a way to finance a business using retirement assets such as a 401(k). Here’s how it works: After incorporating your new business, you would issue corporate stock from your new company and start a retirement plan for the new company. You would then roll over your old 401(k) into the new company’s 401(k) and use that rolled-over money to purchase the new company’s stock. Your new retirement plan essentially becomes the owner of the company, which now has operating cash.

Benetrends Financial sets up the retirement plan and offers several ongoing services, including:

• Filing your annual Form 5500. Form 5500 is the annual form required by the IRS and Department of Labor where you would report basic information about your retirement plan and its participants.
• Maintaining and administering your retirement plan for you and your employees. A ROBS plan is more than a way to get money for your new business — it’s a retirement plan for you and your employees, one that your employees may participate in if they choose and meet eligibility requirements. Employers may choose to make contributions as well.
• Providing its Rainmaker Guarantee with Audit Shield protection.

Many business owners see a ROBS maneuver as a one-time step to get the money they need to start a new company, said Benetrends Financial CEO Dallas Kerley. But it’s also an ongoing retirement plan that needs to be maintained and, most likely, changed. “Whatever we design the first year,” Kerley noted, “is not going to be appropriate five years down the road.”

Rollover for business startups: pros and cons

Regardless of whether you choose Benetrends Financial or one of its competitors for ROBS funding, it’s important to go into it knowing the advantages as well as the risks.

Pros

• No monthly payments or interest fees are involved with ROBS, unlike using a traditional small business loan to fund your business.
• No minimum credit score requirements to meet since you are using your own retirement funds.

Cons

• There’s risk in sinking retirement funds into a business that may fail.
• IRS and Department of Labor (DOL) rules means there are penalties, in the form of a tax, if your ROBS plan is not in compliance. Your ROBS provider should take care of this as part of the fees it charges, but those can be expensive.

Other types of Benetrends financing

• SBA 7(a) loans
  • Up to $5,000,000
  • Maximum allowable fixed APR of 12.75%
  • Maximum variable APR of prime rate + 4.75% (9.5% at time of publication)

• Securities-backed lines of credit
  • Minimum amount: $100,000
  • 70% LTV on equity portfolio

Beyond ROBS financing, Benetrends Financial provides other sources of funding, including SBA loans, securities-backed lines of credit and conventional term loans. As Kerley noted, it’s not uncommon for business owners to combine more than one type of financing: ROBS for a down payment to buy a business, for example, combined with an SBA loan for ongoing costs.

SBA loans

The vast majority of the SBA loans Benetrends Financial offers are 7(a) loans, the Small Business Administration’s signature loan program. One reason SBA loans are so popular is because the federal government guarantees up to a certain percentage of the loan, which allows lenders to keep interest rates relatively low. Standard 7(a) loans are available up to $5,000,000. The SBA guarantees up to 85% of loans as large as $150,000, and up to 75% of loans exceeding $150,000.

Benetrends Financial shops your application to its network of 20-plus lenders and guarantees an approval or it refunds its fee, which is a maximum of $2,500. Business owners should be seeking $50,000 or more in funding.

SBLOC

Benetrends Financial’ securities-backed line of credit (SBLOC) is similar to a home equity line of credit, but instead of your home serving as collateral, you would be borrowing against an investment portfolio. You would typically be able to borrow about 70% of the portfolio’s value. The stock should have a share price of at least $5.

Do you qualify for Benetrends Financial?

One of the biggest benefits of ROBS funding is that it’s designed for startup businesses. Qualifying is relatively easy because you’re using your own retirement funds. Of course, if you can withdraw retirement funds without penalty — or those penalties are less than Benetrends Financial’ fees — a ROBS plan probably isn’t the best fit for you. It’s probably not a good idea if you haven’t built up sufficient cash in your retirement funds: less than $40,000, according to Benetrends’ recommendations.

Requirements for other types of Benetrends financing

However, for other types of financing, you’ll need to meet other types of requirements. With an SBA loan, for example, there technically isn’t a specific minimum credit score, but lenders may look for a credit score of at least 640 to 680 and other SBA loan requirements. You will also need to be a for-profit business that operates in a U.S. state or territory, have personal capital invested in the company and not be able to get funds from any other lender.

How to apply for Benetrends Financial

To apply for any type of financing through Benetrends Financial, you’ll need to schedule a free consultation. You may do this online where you’ll need to provide your name, email and phone number, along with an indication as to whether you are a current Benetrends Financial customer.

Benetrends Financial: Is it worth it?

ROBS funding is a novel way to access tied-up retirement funds for business financing, but it isn’t without risks. As we mentioned earlier, you’ll need to keep up with IRS and DOL rules.

Benetrends Financial offers Audits Shield protection, and says that in its more than 35 years in business, it has never had a plan disqualified. According to CEO Kerley, Benetrends’ audit rate is about 0.5%. The company has received only a single customer complaint through the Better Business Bureau and no complaints through the Consumer Financial Protection Bureau as of publication.

Benetrends Financial versus other ROBS providers

Since Benetrends Financial pioneered ROBS more than 35 years ago, numerous competitors have piled into the space. Some of these competitors have fees comparable to Benetrends Financial, so it will be up to you to ask detailed questions about customer service, audit rates and exactly what services your fee will cover.

Benetrends Financial vs. Guidant

Guidant has offered ROBS plans since 2003, nearly half as long as Benetrends Financial. However, Guidant has been doing an admirable job of playing catch-up. It offers greater transparency than Benetrends, posting its costs and terms on its website, requiring a $4,995 upfront fee and a $139 monthly fee for plan administration. But Benetrends may offer more rapid time to funding, 10 days compared to three weeks on average at Guidant. Both Guidant and Benetrends offer audit protection.

Benetrends Financial vs. FranFund

FranFund also publishes its fees: an upfront fee of $4,795, with monthly fees of $130 thereafter. As with Benetrends, you may get your ROBS plan funded with FranFund in as few as 10 business days. It also provides audit defense.

Benetrends Financial vs. CatchFire Funding

CatchFire Funding doesn’t publish exact fees on its website, but says its initial fees are just under $5,000, with ongoing service fees less than $1,000 per year. In addition to an IRS and DOL plan audit guarantee, it offers a 401(k) funding process guarantee: essentially, if anything in the process fails in the first 60 days, you won’t be liable for any expenses.