How to Determine the Right ROBS Provider

Rollovers as Business Start-ups (ROBS), also known as 401(k) business financing, is not a new form of small business funding, though it is less well-known than more traditional options like bank loans. Made possible by the Employee Retirement Income Security Act (ERISA) of 1974, ROBS is a legal funding option for new and existing entrepreneurs to start a business debt-free and cash-rich by using their retirement funds to finance their small business without triggering tax penalties.

For the ROBS transaction to remain tax penalty-free, there are strict rules and guidelines that must be followed, as set by the Internal Revenue Code (IRC). Because these rules are strict and often complex, working with a qualified, experienced third-party ROBS provider helps you stay in compliance, avoid tax penalties, and complete the funding process quickly.

A financial consultant at a ROBS provider should help you determine if ROBS is the right solution for you, not what will make them the most commission. The consultant should also be able to describe the ROBS process in detail from how the structure will work long-term for your business to the exit plan. You should feel like you’re being educated on financing options, not being sold a product. If you’re not getting straight-forward answers, proceed with caution.

How else can you make sure a ROBS provider is qualified and experienced? Here are seven important topics to focus on when choosing the best ROBS provider.

#1 – Industry Experience

ROBS experience is one of the most important things a firm should have as a ROBS provider. Industry experience means the provider has a refined process, familiarity communicating with the IRS and DOL, and is comfortable working with financial institutions and franchises. You should always be able to depend on your ROBS provider for accurate and efficient results.

One of the best signs of industry experience is the number of ROBS transactions the firm performs each year, and how many years they have been handling ROBS transactions. Some companies may claim to be ROBS experts but only perform a few hundred rollovers a year or focus more on their other financial offerings. A strong ROBS provider should do at least 1,000 ROBS transactions a year, and the best providers have at least a decade of successful ROBS experience.

An exceptional ROBS provider will be considered an industry leader and have honors, awards, and industry recognition to back them up. They should employ subject matter experts who can share their advice based on past experiences and provide ongoing support. These firms will also be eager and happy to share knowledge and education with you, so you never feel lost in the ROBS process.

#2 – Service Costs

You shouldn’t encounter any surprises when working with a ROBS provider, so look for transparency in pricing. Make sure the firm provides audit protection as well as in-house legal, business valuation, and plan administration services as part of their costs. In general, the average ROBS setup costs around $5,000 while the average monthly maintenance fee is $140.

Always remember — you get what you pay for. Avoiding using an experienced ROBS firm for your monthly plan administration may save you money in the short term, but the cost of falling out of compliance or accidentally triggering a prohibited transaction and being penalized by the IRS or DOL will likely cost you much more in the long run. Firms that don’t provide essentials like audit protection or legal consultation may be cheap, but cutting corners generally isn’t worth the risk.

#3 – Process and Timeline

From the time you first engage with a ROBS provider, they should be able to share their process with you in detail. They should detail their ROBS process upfront, provide a reasonable timeline, share any barriers that could slow the process, and complete the transaction on time. They should also be able to review state filing timetables, which can vary greatly, and be familiar with how your current 401(k) custodian could affect the schedule.

An experienced firm can help you complete the rollover on an average of about three to four weeks, with the potential to rush the process if expedited funding is needed. However, firms that claim they can complete the ROBS process in 10 days or less are often not able to follow through on that promise.

Guidant Financial’s ROBS process, from kickoff to new business

#4 – DOL and IRS Audit History

As a part of funding a business through the ROBS arrangement, your new corporation will sponsor a 401(k) plan. ROBS transactions do not automatically flag business owners for an audit, but any 401(k) plan has the chance of being audited by the Internal Revenue Service or Department of Labor. Although rare, an audit is a timely and expensive process that can be made less difficult for you as the business owner if you work with a provider who will actively support you through the process.

A quality ROBS provider will offer audit protection to their clients in the case of an audit, and an even better firm will pay for all their client’s legal representation. At a minimum, any firm you’re considering should have experienced Employee Retirement Income Security Act (ERISA) attorneys on staff to guide you through audit proceedings — protecting both you as the fiduciary and your company.

While a provider with no history of audits may seem preferable, it may actually be a warning sign of inexperience. What speaks more than a history of no audits is a history of successful audits – meaning no taxable event has ever occurred as a result of one of the provider’s ROBS arrangements.

#5 – External Legal Counsel

Investing part or all of your nest egg into a small business is a big decision – and not one to take lightly. Look for a ROBS firm that encourages you to seek outside legal representation that can provide unbiased advice. Better yet, seek a firm that offers this outside counsel as part of their rollover package.

#6 – Ongoing 401(k) Maintenance

Because your newly created business will be built on behalf of the entrepreneur’s retirement plan, the ROBS structure can be of interest to the IRS – they are very protective of the use (or abuse) of employer plans. This means that a ROBS arrangement requires monthly maintenance to keep the new business and its 401(k) plan compliant.

While most firms offer plan administration services, a quality firm will employ an in-house administration team as well as an on-site compliance team and attorneys. With these important teams in-house, you’ll receive a better customer experience with much faster response times.

#7 – Additional Funding Solutions

A quality ROBS provider will want to truly be your partner in business and be able to support your venture as it grows and evolves. If you work with a firm that offers diverse financing solutions, you can leverage their experience and your relationship to increase funding power initially or down the road when you want growth capital. Guidant Financial, for example, offers SBA loans, unsecured loans, and portfolio loans.

More benefits that a quality ROBS provider can offer are business services or partnerships with companies (creating a discount for you) that can help you streamline operations – such as payroll, corporate maintenance, or even equipment purchasing.


More than anything, the ROBS provider you put your trust in to complete your ROBS transaction needs to give you confidence as a new business or franchise owner. Choose a provider that has exceptional customer service and can answer your questions quickly and thoroughly. Your peace of mind is important when starting your new venture. Working with the right provider means you’ll be one step closer to long-term success.




About the Author

Guidant Financial Guidant Financial helps business owners secure financing to start, buy, or grow a business. An industry leader in business and franchise financing, Guidant works with new and existing entrepreneurs to identify, evaluate, and deploy customized financing solutions.

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