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By Dallas Kerley, President & CEO • March 18, 2020

Funding Strategies in a Declining Stock Market

Before we look at funding strategies, we want to share a few thoughts with you. With the news about the impact COVID-19 is having and the steps the Government is taking to support businesses, which changes daily, we often feel the “rush” to share information. At Benetrends we will always look to get you the most accurate information quickly, but we will be cautious not to communicate speculation or make announcements prematurely on proposed legislation. As you have seen just in the last few days, things change quickly. So, if the SBA offers new programs, we will confirm that information, decide how it best benefits our partners and clients and then share.

Alternatives strategies for candidates waiting for their stocks to “bounce back”

We have recently seen as I am sure you have; many entrepreneurs are putting on the brakes and deciding against moving forward with their business purchase. Often, they are making that decision because they are waiting until their stock portfolios recover from the recent selloff, or they can no longer afford to move forward due to a lack of sufficient funds to complete the transaction. Rather than sit and wait for a possible market recovery, there are other alternatives.

The first common alternative to a using 401(k) rollover is a home equity loan, however for those who don’t want to use that option or don’t have sufficient equity, an SBA loan can be an attractive alternative. With the Federal Reserve having recently lowered the Fed Funds Rate to 0%, the interest rate for an SBA loan are at or near historic lows. Utilizing an SBA loan lowers the needed cash required to purchase a business and later when the market has recovered, because there is no prepayment penalty, a rollover can be used to pay off the loan.

Another possible option is a portfolio loan. This loan operates much like a home equity loan; however instead of using the equity in your home as collateral, this loan uses the stocks in a portfolio as the collateral. There is no need to sell the stocks, the stocks remain in the client’s name, the client still receives all the appreciation and dividends as their portfolio recovers. The loan can be funded in as little as 10 days, the interest rate is often lower than an SBA loan, and credit score is not a factor. However, it is important to know that this type of loan can only be used for stocks not held in a retirement plan.

Don’t forget, for buyers who are using cash or an SBA loan, the Rainmaker Advantage Plan® is a great way to mitigate or eliminate taxes on the gain from the sale of a business. The benefits of this program have often proven to overcome the desire to take a job over going into business.

As always, Benetrends will work diligently to overcome the fear and anxiety you may have and ensure you will have the necessary funding to get across the finish line to successful entrepreneurship.

To learn more about how Benetrends can help finance your small business, schedule a consultation. If you are a current client or partner, please reach out to your Benetrends representative. If you don't recall the name of your representative, please send a request.