Personal Financial Statement
And funding options
Many of the listings such as this one that I inquired about today require proof of funds. The suggestions on searchfunder were to use the SBA form 413 which will be required to get an SBA 7A loan to acquire a business. I downloaded this form linked above and started filling it out. For my situation, it was fairly straight forward, since I sold our house and paid off all of our loans.
So on the asset side I have what is left in the saving account, and my retirement. Since I am no longer working and don’t have other sources of income, the asset side was straight forward.
The liability side was also simple, as the only loan we have outstanding is the one taken on the retirement a couple of years ago. That reminded me, as I had not checked what to do about that since I lost my job. I had to set up payments before it became delinquent, and I managed to get that done as well. It is unclear if I leave the plan if I will have to repay the balance or will be able to continue payments, but I hope for the latter.
I plan to provide this to the brokers when they require a proof of funds. The majority of my assets are tied up in a retirement account. I began talking to different folks to try to figure out how I could use this money to fund a business acquisition, and I attended a few hours of YouTube university as well. I believe my options currently look like this:
Options for funding capital injection on SBA 7A loan:
Withdraw the total amount paying a 10% penalty and income tax (at the top income bracket) of 37% thus losing 47% of the money. Resulting in having enough to fund ~2.5M purchase.
Move the money to a self-directed 401K and borrow $50K from the plan, leaving the rest in the retirement account. Resulting in enough to currently fund a ~1M purchase. All but $50K of my retirement would be available to invest in other business searchers.*
Figure out if I can set up multiple self-directed 401K accounts each with $100K and then borrowing $50K from each. The law states that each account can borrow up to $50K, but there are no limits to the number of accounts as I understand it. Resulting in having enough to fund ~2.5M purchase. This would also leave all the money in my retirement account, with the ability to utilize the other half to invest in other business searchers.*
Get investors, many of which use their retirement accounts, to cover at least 9% of the capital injection required, and use the $50K loan option for my 1%. This results in the ability to purchase up to ~$4.3M purchase. All but $50K of my retirement would be available to invest in other business searchers.*
*Investing in other business searchers, acquiring businesses, can bring amazing returns. Additionally, I am led to believe it is perfectly legal to do so from your 401K as long as you don’t work in the business. Thus, instead of a 10% return from the stock market, which is the average over the past roughly 200 years, it is likely to be roughly 30%. It carries a different risk and also is not as liquid, but I can diversify by investing in a number of different searchers significantly reducing the risk and allowing me to own a small piece of many businesses.
I believe that the last 2 options are best, with one allowing me to have 100% ownership and the other having roughly 75% with the investors getting the other 25%. Both of which will allow me to grow my retirement at the same time.
Now, looking at the stock market diving here recently, I moved my retirement funds around to try to preserve them until I move them to a self-directed plan.
I welcome any discussion or advice on this plan, and as always either in the comments or via email, jordan@sleepycreekcapital.com.