It's been a common strategy in the apparel business for years and has now spread to a variety of businesses. Terms can vary widely, so do your research, ask for references, read the fine print and carefully compare offers.
Retirement accounts. Despite admonishments to never touch a retirement account, especially a 401(k), some small-business owners find it a useful tool to fund their operations.
Sharon and Mark Noneman recently opened the Taste of Wine shop in Tualatin, Ore., and to fund the start-up they tapped his 401(k) account for nearly $50,000. But instead of withdrawing money, which triggers taxes and penalties, the Nonemans borrowed from the retirement account.
"We weighed the options and decided it was the best course," said Sharon Noneman, who employs six people.
Noneman, a former human resources executive, set up a 401(k) at her small business through ShareBuilder 401k of Bellevue, Wash., a subsidiary of ING Direct.
ShareBuilder has sold 2,500 plans so far, targeting smaller firms that typically don't consider a 401(k) an option.
General Manager Stuart Robertson says some small-business owners are setting up the accounts, often rolled over from accounts at former employers or from an individual retirement account, just so they can access their cash for business use.
"They are loaning themselves money," he said, and pay a $75 fee for the transaction.
That can be attractive for some small-business owners. The interest rate for his customers is prime rate plus 1% -- or 6% currently. The maximum loan allowed by the IRS is $50,000, although not every account holder will have enough qualified funds.
"You want to be sure you are on firm financial ground" before taking such a loan, Robertson cautioned. Failure to make regular payments or to repay a non-home loan within five years can trigger taxes and penalties. Someone in the 25% tax bracket, for instance, would owe 35% on the borrowed money.
Vendors. Large vendors may have formal credit plans for their customers, but it can't hurt to approach your other suppliers about extending credit. Have a plan showing how the money will be repaid and be sure to address how your business plans to handle the ongoing financial uncertainty.
Credit unions. Most credit unions don't yet offer business loans, although some are starting to participate in the SBA loan programs. This could be a good source for credit for qualified small-business owners.
To get a loan, the owner has to become a credit union member. Many credit unions limit membership based on where a person lives or works.
For worried owners, having access to credit -- even if they don't use it -- can help ease fears that they are powerless in today's troubled economy.
"We've been in business for so long and I've seen it bad several times before," restaurateur Contos said. "But I think this one takes the cake because the economy is really, really affecting all facets, from housing to small business to stocks. It's just really overwhelming."
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cyndia.zwahlen@latimes.com
