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Self-Directed Retirement Funding and 3 Other Creative Ways to Finance a Startup

Here are four creative ways to secure the funds necessary to acquire your first customers.

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When it comes to starting your own business, perhaps the biggest hurdle to getting started is obtaining initial funding. If you’re young, inexperienced and can’t boast of any past successes, closing traditional funding will most certainly be near impossible.

Thankfully, there are several ways to secure the funds necessary to acquire your first several customers without needing to “beg, borrow and steal” from family and friends.

Self-Directed Retirement Funding

Traditional retirement account funds needed to be housed and managed by a custodian, keeping the funds limited to very particular investment vehicles. For instance, private business investing was off limits for most IRAs.

If structured properly, individuals can now use retirement funds to invest in everything from privately-held businesses to real estate. Roadblocks exist for young entrepreneurs with little to no nest-egg built up in their personal IRA or 401(k). In addition, self-directed retirement accounts cannot be used to fund business operations by the IRA trustee.

Luckily there are thousands of individuals who may have already rolled-over their retirement funds. Partnering with financial planners and wealth management companies who specialize in IRA and 401(k) rollovers can be extremely helpful in tapping into the billions held in American retirement accounts. It’s a non-traditional source of retirement account investing that not only works, but can have a huge impact on the young and old alike.

Solo 401(k) Funding

Similar to the self-directed IRA, solo 401(k) accounts allow entrepreneurs to tap the monies pent up in retirement funds. Unlike the self-directed IRA, the solo 401(k) account allows a startup entrepreneur to directly tap the monies in his or her own retirement funds for use in their own business ventures.

As an alternative funding avenue, it does have a disadvantage in that it does not give entrepreneurs a way to diversify risk away from their businesses. Instead of investing in the entire market absorbing more of the systematic risk, a solo 401(k) exposes the entrepreneurs more than they should feel comfortable. On the flip side, it can be a source of funds when entrepreneurs have a difficult time finding the money required.

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