An SBA loan creates repayment obligations. ROBS puts eligible retirement assets into ownership of the business. Combining them can reduce the loan needed, but it also exposes retirement savings to the business's outcome.
Compare more than the monthly payment: look at personal cash left outside the business, retirement assets invested, and the responsibilities attached to each structure. Use the franchise funding calculator to model the arithmetic before choosing a structure with your advisers and lender.
What changes between the options?
| Question | SBA financing with cash | ROBS with cash | SBA, ROBS, and cash |
|---|---|---|---|
| Where does funding come from? | Lender plus your contribution | Eligible retirement rollover investment plus cash | All three sources |
| Is there a payment on the modeled loan? | Yes | No loan in this scenario | Yes, on the smaller modeled balance |
| What happens to retirement assets? | No rollover investment in this scenario | Invested in the business | Part invested in the business |
| Main planning concern | Repayment capacity and liquidity | Retirement exposure and ongoing plan administration | Both sets of obligations |
| Who must review the structure? | Lender and relevant advisers | Qualified retirement-plan, tax, and legal specialists | Those specialists plus the lender |
These are planning comparisons, not eligibility determinations. Only one option may be workable for a buyer, or none may be appropriate for the proposed project.
What an SBA loan adds to the plan
SBA's 7(a) program provides a guarantee to participating lenders. Eligible uses can include equipment, working capital, and qualifying ownership changes. You apply through a lender, which reviews the borrower and project. SBA lists creditworthiness and reasonable repayment ability among its eligibility requirements. See the SBA 7(a) loan overview.
For franchise buyers working with Fund My Franchise, Al Lesko's practical credit target is 720 or higher, based on his financing experience. You may encounter lower published lender minimums, including 680. Those numbers describe different things: a stated entry threshold and a practical target for building a stronger application. Neither guarantees approval, and 720 is not a universal SBA rule.
Credit is one part of the file. Your proposed contribution, remaining liquidity, existing obligations, relevant experience, franchise, and projected repayment capacity still need review. See the SBA franchise credit guide for the fuller discussion.
What ROBS changes—and what it does not
In a ROBS arrangement, a retirement plan uses rolled-over assets to buy stock in the new C corporation. This can supply business capital without creating a loan payment on that investment. It also ties those retirement assets to the company's value.
The IRS identifies concerns involving plan operation, reporting, stock valuation, and discriminatory treatment. A favorable determination letter addresses plan terms; it does not certify that the business or ongoing administration is approved. See the IRS ROBS Compliance Project.
Request actual setup and continuing administration quotes. Understand the work that remains after funding, who performs it, and what happens if the business closes or is sold. Reviewing ROBS rules and responsibilities is a separate step from comparing payments.
Compare three versions of the same $500,000 project
All figures below are invented illustrations, not client outcomes, lender offers, or recommended contributions. We assume a $500,000 project and $150,000 of available non-retirement cash. Each ROBS scenario also assumes access to the stated amount of eligible retirement assets; those assets are separate from the available cash.
To isolate financing arithmetic, both loan scenarios use an assumed 10.5% annual interest rate, monthly amortization, and a ten-year term. This is not a current market-rate claim. Fees, taxes, changing interest rates, and ROBS setup and administration costs are excluded. Obtain quotes and add applicable costs before comparing real options.
| Modeled result | Cash + loan | Cash + ROBS, no loan | Cash + ROBS + loan |
|---|---|---|---|
| Project cost | $500,000 | $500,000 | $500,000 |
| Cash contribution | $150,000 | $50,000 | $50,000 |
| ROBS contribution | $0 | $450,000 | $150,000 |
| Modeled loan | $350,000 | $0 | $300,000 |
| Cash retained outside project | $0 | $100,000 | $100,000 |
| Estimated monthly loan payment | $4,722.72 | $0 | $4,048.05 |
Cash + loan: check what remains after closing
The first version leaves no cash from the stated available balance outside the project. That deserves attention even if its credit profile and payment appear workable. Read the franchise cash-needs guide when planning for personal runway and business reserves.
Cash + ROBS: no loan payment still means exposure
The second version removes the modeled loan payment but puts $450,000 of retirement assets into the business. No debt payment does not mean no cost or no risk.
Cash + ROBS + loan: consider both obligations
The third retains cash and reduces the modeled loan payment, while putting $150,000 of retirement assets at business risk. It is not automatically the best choice. Its usefulness depends on the buyer's wider finances, tolerance for loss, eligible funds, specialist review, and lender acceptance.
Hold cash constant before comparing the payment reduction
The first table changes more than one funding source. To see only the effect of adding ROBS, hold the cash contribution at $50,000 and keep the same $500,000 project, assumed 10.5% annual rate, and ten-year term. Other funding remains $0.
| Modeled result | Without ROBS | With $150,000 ROBS |
|---|---|---|
| Cash contribution | $50,000 | $50,000 |
| Modeled loan | $450,000 | $300,000 |
| Estimated monthly loan payment | $6,072.07 | $4,048.05 |
The difference is $2,024.02 per month under these assumptions. The calculator makes this same kind of comparison: it removes the ROBS contribution while holding the project cost, cash contribution, other funding, interest rate, and term constant.
That difference is a loan-payment reduction. It is not a net investment return, total economic saving, or promise of a better retirement outcome. The comparison excludes administration costs and whatever return or loss those retirement assets would otherwise experience.
Can you combine ROBS with an SBA loan?
A combined structure may be possible, but the calculator cannot validate it. Before treating a rollover investment as part of the lender's required contribution, have the lender and qualified ROBS specialists review the proposed ownership, documents, timing, source of funds, and applicable requirements.
Ask for a clear list of conditions and the evidence each party needs. Do not build a closing plan around a verbal assumption that the structure will work.
The same principle applies to a proposed gift, partner contribution, or seller financing: entering a number in “other funding” does not establish that the lender will accept it. The calculator also does not add separate repayments for borrowing entered in that field. Include those obligations when reviewing the full plan with your lender.
Test the business as well as the funding
After comparing payments, review a slower-sales case and a higher-cost case. For a variable-rate loan, also model a higher rate. Keep a record of what changed so you can see why the result moved.
Do not put gross sales into the calculator's annual cash-flow input. Ask your accountant and lender which cash-flow measure is appropriate. A debt-service ratio is only as useful as the cash-flow assumption behind it.
- How much personal cash remains outside the project?
- What retirement assets could be lost if the business fails?
- What happens if opening is delayed or costs rise?
- Can the business support its obligations without the most optimistic revenue forecast?
- Have actual financing and administration costs been included?
Compare your franchise funding scenarios, then bring the estimates and underlying assumptions to Al. The goal is a funding plan you understand and can support.