A recent report suggests that 25 million hopeful business owners may be forced to investigate non-traditional forms of business funding.
PARKER, Colo., April 2, 2014 /PRNewswire/ — First, the good news: according to a study funded by MetLife Foundation, based on a survey by Penn Schoen Berland, approximately 25 million people – one in four Americans ages 44-70 – are interested in starting their own businesses or nonprofit organizations in the next five to 10 years.
Now, the less-than-encouraging news: between 2007 and 2013, bank loans guaranteed by the U.S. Small Business Administration fell 60 percent. This is according to a report by The California Reinvestment Coalition.
For an added dose of irony, the MetLife study also finds that nearly six in 10 (58 percent) of these future entrepreneurs say the current economic crisis makes them more likely to start their own businesses or nonprofit ventures.
In summation, the very factors that have contributed to the rise in entrepreneurial aspirations may also be responsible for the apparent lack of available small business funds.
If the downward trend in SBA loan approvals continues in the coming years—or even if it were to begin to slowly rebound—where does that leave the millions of would-be mid-life entrepreneurs?
A survey, titled Who Started New Businesses in 2013, and conducted with companies recently formed using LegalZoom, may help shed some light. It says the use of personal savings to fund a startup business jumped from 66 percent in 2012 to 86 percent in 2013.
What, specifically, do those personal savings include? One could surmise the use of checking and savings accounts, personal collateral, and funds or direct withdrawals from retirement accounts like 401ks or IRAs.
According to Bill Seagraves, president of CatchFire Funding, another means of self-funding could be responsible for the shift. "In the past year, our leads have nearly doubled," said Seagraves. "Once people learn about the benefits of utilizing a self-directed 401k to fund their business, it usually doesn't take long to make a decision."
A self-directed 401k is a method of using retirement monies currently in an IRA or 401k to invest in a business. Different than taking a loan or direct withdrawal, both which are subject to fees, penalties or other restrictions, a self-directed 401k utilizes pre-tax dollars so there are no penalties or interest to pay.
"Capital is the lifeblood of small businesses and entrepreneurs wanting to start a business. It's frustrating that at a time when these individuals need access to funds, so many are being turned away. What the SBA is doing is tantamount to a hospital announcing it's out of medicine, then doing nothing as its patients suffer," said Seagraves. "My mission is to pick up where the government is failing by providing entrepreneurs a means in which they can fund themselves through a self-directed 401k."
It may be too early to make a direct correlation between the use of 401k funding and the 20 percent rise in personal savings funding sources, but it does provide a viable option for those tens of millions of Americans hoping to start their own businesses amidst today's rigid SBA loan approval standards.
CatchFire Funding is a firm dedicated to assisting clients in the effort of unlocking financial solutions for business ownership, specifically in the realm of business and franchise ownership. They specialize in 401k rollover and IRA funding options that aid clients in achieving financial freedom through long-term, wealth building strategies.
Press Contact:
Susan Baloun
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http://www.calreinvest.org/news/new-report-finds-60-drop-in-small-business-lending
http://blog.iese.edu/bizknowledgewatch/2014/who-started-new-business-in-2013-in-u-s/