Buyers have several options for financing a franchise deal. Some of them are well-known and well-understood, such as traditional bank loans and SBA-backed (Small Business Administration) loans; others might be new to some buyers. The ROBS program, for example, might be advantageous for some franchise deals.
The ROBS program doesn’t require lender approval.
The ROBS (Rollover as Business Start-Ups) program has a proven track record lasting almost thirty years. The program has helped thousands of entrepreneurs secure funding in an effective and legal way, as it was designed in cooperation with the IRS. It’s also quick – many business owners receive their funding in as little as 10 business days.
It works like this: a ROBS arrangement uses your retirement funds to purchase equity in your new company. The process requires five steps:
First, you must form a C-corporation (S-Corporations or LLCs do not qualify).
Second, the C-Corp establishes a new, qualified 401(k) or profit-sharing plan. You transfer assets from your eligible retirement account into the new company’s plan to buy stock in your company. The proceeds from the stock sale go into the business checking account to fund startup costs, inventory, payroll, or the acquisition of a business.
When using money from ROBS, it’s your money, not the bank’s. For that reason, you’re not paying interest as you would with an SBA loan. That’s significant for a new-to-you business. Consider the math:
A $1 million SBA loan at 10% doesn’t just cost roughly $100,000 in first-year interest. Assuming a 10-year amortization, it requires approximately $158,600 in debt-service payments in Year 1 alone—about $97,200 in interest and $61,300 in principal. That’s nearly $159,000 of cash flow that has to service debt rather than remain available to operate and grow the business. That’s money that could be spent on capital improvements, employee benefits, marketing, or any number of other legitimate business uses.
Also, a bank and the SBA must approve any loan, and to do so, they need confidence that the business can generate sufficient cash flow to service the note and provide a reasonable salary to the new owner. That stipulation may disqualify the opportunity you are considering. In other words, if the business is not able to support the debt service and pay the owner, the lender won’t fund the deal. With the ROBS program, buyers can decide whether they can make the numbers work for them. They may, for example, decide to forgo their salary in lean months, which the SBA’s terms don’t permit.
Using the ROBS program can dramatically increase a company’s cash flow.
The benefit of ROBS isn’t just avoiding the interest on a loan — it’s avoiding the entire principal and interest payment on the amount funded through ROBS.
For example, if someone buys a $200K business that generates $60K in yearly cash flow and chooses traditional financing for the entire purchase price, they could have roughly $32K a year in loan payments, leaving only about $28K in net cash flow.
If they funded the $200K through ROBS, there would be no acquisition loan payment, so the business would still have the full $60K of cash flow before taxes and other considerations. That could make a huge difference to a small business owner who relies on the cash flow for income.
There is risk, but every venture includes some risk.
Buyers sometimes worry about putting their retirement funds at risk, but any investment offers some risk. Steve Bowles of Tenet Financial likens using your 401(k) to investing in a startup. “The money in your 401(k) is funding working capital in publicly-owned companies, and their performance is completely outside your control,” he says. “Why not use the money you’ve worked hard to earn to invest in yourself? Warren Buffett, when asked what the best investment was, said ‘By far, the best investment you can make is in yourself; if you invest in yourself, nobody can take it away from you.’”
With the ROBS program, a buyer doesn’t have to deal with interest expense and bank approval hassles. You can also move with speed, which puts you at an advantage when competing with other buyers for a deal.
SBA loans require down payments and collateral. The ROBS program does not.
SBA borrowers must prove their creditworthiness and secure the loan with personal assets such as real estate. Franchise brokers will often work with prospective buyers to get them pre-qualified with lenders before making an offer, which reduces the possibility of snags and surprises late in the negotiations.
And government programs do shift priorities based on federal policy. For instance, as of this writing, the SBA will not lend to a borrower who is not a U.S. citizen. SBA approvals came to a halt during the 2025 government shutdown, freezing roughly $5 billion in funding, stalling around 4,800 SBA 7(a) and 504 loan applications nationwide, and creating a backlog that significantly slowed the process for potential business buyers.
The buyers Franchise Clearly has worked with recommend using ROBS when the business strategy is a long-term one, rather than one based on a short turnaround. Steve Bowles also warned about the risk of using traditional IRA funds. “You’ve already paid tax on the money, so if the business fails, you’ve lost twice: both the investment and the tax you’ve already paid on it,” he says.
The cost/benefit analysis for each of these financing methods will be specific to your business and its cash flow. If the business’s cash flow is too tight to remain profitable with the addition of debt service, the ROBS option might provide a viable workaround.
Find more information on the ROBS program here.
