If you’re dreaming about opening your first franchise or expanding into a second location, you’ve probably realized that finding the right funding can be the toughest part. From bank loans to investor funding, there’s no shortage of options, but each one comes with trade-offs. Two of the most common routes are ROBS (Rollovers as Business Startups) and SBA loans, and both can be game-changers if used wisely.
Let’s break down ROBS vs SBA loans – what each option actually means, how they work, and which one might fit your goals best.
What Is a ROBS?
Rollovers as Business Startups (ROBS) is a way to use your existing retirement funds from a 401(k) or traditional IRA to finance a business, without taking on debt or paying early withdrawal penalties.
It allows you to roll over your retirement funds into a new 401(k) that invests directly in your new business. The business must be structured as a C Corporation, and that corporation will have to issue stock purchased by your retirement plan. In short, your retirement funds become an investor in your business.
It’s not a loan, so you don’t owe interest or monthly payments, but it does mean your personal retirement savings are on the line if the business struggles.
ROBS can be set up in a few weeks, which makes it appealing for entrepreneurs who want to move fast, such as franchise buyers with a signing deadline.
What Is an SBA Loan?
The SBA loan is a loan to small businesses that’s partially guaranteed by the Small Business Administration (SBA). This guarantee helps approved lenders reduce their risk, so banks are more comfortable funding small businesses that might not qualify otherwise.
The most popular option is the SBA 7(a) loan, which can cover anything from startup costs to buying a franchise location or expanding into new markets. Loan amounts can range from tens of thousands to several million dollars, depending on your business plan and financials.
SBA loans usually offer lower interest rates and longer repayment terms than traditional bank loans, but they require strong credit, collateral, and a detailed application process. It’s common for approval to take two or three months, so they’re great for well-planned expansions.
How ROBS & SBA Loans Compare
Both ROBS and SBA loans can help you get a business off the ground, but they do it in very different ways. Understanding how they compare in terms of taxes, ownership, and long-term impact can help you make a more confident decision.
Speed and Timing
If your franchise deal is moving quickly and you need capital right away, a ROBS is often the faster route. Once your C corporation and plan are set up, you can usually access funds within a few weeks.
An SBA loan, on the other hand, can take several months to process. Between lender underwriting, business plan reviews, and collateral checks, it’s a longer road. That said, the wait often comes with benefits like predictable payments and low, fixed interest rates.
Cash Flow Impact
A ROBS doesn’t create debt, which means no loan payments eat into your early cash flow. That can be a major relief when your business is still ramping up. However, since you’re investing retirement money, you’re putting future savings at risk.
An SBA loan adds monthly payments to your books, but it keeps your retirement intact. The interest is also tax-deductible, and strong cash flow can make those payments very manageable over time.
Legal Structure and Control
ROBS funding requires you to form a C Corporation and establish a qualified 401(k) plan that purchases shares in your company. The retirement plan technically owns the stock, and you operate the business as its employee and fiduciary. That gives you control but also adds compliance responsibilities under IRS and Department of Labor rules.
An SBA loan gives you more flexibility in how you structure your business. You can operate as an LLC, S-Corp, or partnership, and ownership stays with you personally. The trade-off is that lenders usually require a personal guarantee, which puts your credit and possibly some personal assets on the line.
Tax Treatment and Long-Term Impact
This is where the two options diverge sharply.
With ROBS, your business’s growth happens inside your retirement plan. That means all appreciation, dividends, and future sale proceeds are tax-deferred. You don’t pay tax until you take distributions from your retirement account years later, often at a lower tax rate. The corporation itself pays 21% corporate tax on profits, but dividends paid back to the plan are exempt from dividend tax, so there’s no double taxation inside the plan.
However, compliance is critical. If the plan ever falls out of compliance, the IRS can treat the entire rollover as a taxable distribution. For example, if funds are misused for personal benefit or required filings are missed, that would trigger income tax, a 10% early-withdrawal penalty if you’re under 59½, and potentially steep excise taxes on prohibited transactions.
There is an option of a ROBS with a Roth conversion that takes a different approach, where you pay taxes up front on the converted amount, but all future growth and retirement withdrawals are completely tax-free, assuming you meet the IRS holding and age rules.
An SBA loan, by contrast, doesn’t affect your retirement plan at all. Your profits are taxed as regular business income through your entity type, and you can deduct loan interest as a business expense. There’s no tax-deferred growth, but also no special compliance burden or risk of plan disqualification.
Read more: The Ultimate Guide to Rollovers as Business Startups (ROBS) in 2026
Exit and Future Flexibility
Every business owner eventually needs an exit strategy, and how you funded your startup affects how that looks.
With a ROBS, selling your business means your retirement plan sells its shares in your C Corporation. The proceeds flow back into your retirement account and continue to grow tax-deferred (or tax-free for Roth conversions).
The sale structure matters:
- In a stock sale, the retirement plan sells its shares directly, usually creating a simpler, cleaner exit.
- In an asset sale, the corporation sells individual assets, which can create corporate-level tax before funds return to the plan. Buyers often prefer asset sales for depreciation reasons, but sellers usually benefit more from stock sales.
With an SBA loan, the exit is simpler: you sell your business, pay off the remaining loan balance, and keep the net proceeds. You’ll owe capital gains or ordinary taxes depending on your entity type, but there’s no added plan administration to unwind.
Compliance and Ongoing Administration
ROBS structures require ongoing maintenance, such as annual valuations, Form 5500 filings, and strict recordkeeping to stay in IRS and Department of Labor compliance. It’s manageable with professional help but not a “set it and forget it” arrangement.
SBA loans come with fewer long-term obligations once the loan is closed. You’ll still need to meet lender reporting requirements and maintain healthy finances, but there’s no Employee Retirement Income Security Act (ERISA) oversight or retirement-plan paperwork to manage.
Get Expert Advice On Franchise Financing
Both ROBS and SBA loans can be smart ways to fund your business. The best choice depends on your comfort with risk, your long-term goals, and how hands-on you want to be with compliance.
For many entrepreneurs, especially franchise owners or multi-location operators, the right answer might not be either-or, it’s finding the right mix. Using ROBS for the equity portion of an SBA loan can open doors to funding while preserving cash flow and long-term flexibility.
No matter which path you choose, it pays to run the numbers carefully and understand the tax and exit implications upfront.
At Specialized Accounting Services, we help franchise and multi-location brands choose the financing and entity setup that aligns with their goals. If you’re exploring a ROBS, SBA loan, or a combination of both, our team can help you evaluate the numbers and stay compliant every step of the way.
Ready to plan your next expansion? Reach out to the SAS team to talk through your funding strategy.
