Don’t Use Retirement Funds to Start a Business

BusinessWeek’s SmartAnswers columnist, Karen E. Klein was recently asked: “I’d like to start an independent…business and have $50,000 in IRAs. Should I cash in my IRAs or get an ERSOP?”

To which, Klein responded:

“Cashing out your retirement savings, or investing it in a startup venture…is inherently risky and ill-advised. If things don’t work out…not only will you have no income, but you’ll also have no life savings.”

Here are some ways Klein suggested this entrepreneur raise startup capital:

  1. Ask friends and family
  2. Research commercial lenders who specialize in your company’s industry
  3. Reach out to nonprofit microlenders
  4. Consider angel investors

Another financing option entrepreneurs should consider is invoice funding. With this type of financing, a business owner sells his/her invoices to a factoring firm, who then advances up to 90 percent of the invoice immediately. Business owners can use the cash immediately to cover payroll, taxes and equipment costs instead of waiting weeks or months for their customers to pay them.

Click here to see the rest of Klein’s advice on using retirement funds to start a business.

2 Replies to “Don’t Use Retirement Funds to Start a Business

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