For many Americans, retirement isn’t about white sand beaches, or sipping Pina Coladas in the sunshine. For a lot of older people, retirement isn’t about simply relaxing, but really challenging themselves. To pushing their boundaries. To trying new things, meeting new people, and – sometimes – starting a new venture.
Whether it’s a new idea or something you’ve always wanted to do, starting a business in retirement can be rewarding. To both personal and professional fulfillment.
But, like all businesses, you can’t start a successful post-retirement venture without that vital ingredient – the capital. So how can you finance a business while in retirement – and how should you? Moreover, what are the most modern ways you can fund a venture in retirement – lines of credit that go beyond the tried and tested methods of the past?
Below, we’ll explain all. From swimming with sharks to wading into alternative finance providers, find out how you can fund your post-retirement venture by dipping into your savings – and dipping your toe into the world of crowdfunding.
So read on – we’re unpacking 7 of the best, most modern ways of financing a venture while in retirement.
Seek Out Angel Investors
‘Angels’, in this context, are private, high-net-worth individuals. They invest in businesses – often with the capital vital to get a startup or venture off the ground – usually in exchange for a stake in said company, or for a percentage of its future expected profits.
To find angel investors, head online. Angel Investment Network, Gust, and Angel Forum are all popular sites connecting the people looking to finance a venture to those with the capital to do so. You can also attend networking events, or get active on social media.
LinkedIn is a great place to meet potential angels for your business. Even the less business-oriented social platforms – Twitter and Facebook, for instance – can be fertile hotbeds for reaching out to cash-rich investors.
And, for a truly modern way of seeking angel investment, you could go on TV.
Now into its 13th season, ABC’s Shark Tank (‘Dragon’s Den’ if you’re in the UK; ‘Money Tigers’ in Japan) puts entrepreneurs face to face with five ‘sharks’ – wealthy investors with a combined net worth of billions of dollars.
While putting yourself center stage and risking the wrath of the sharks might seem daunting – a younger person’s game, even – Don Wildman of Hand Out Gloves recently proved that you’re never too old to get in front of the camera.
Don was 85 when he appeared on the show, seeking investment in (and finance for) his glove and mittens company. Better still, he came away successful. Don received a $300,000 line of credit from shark Barbara Corcoran, at 6% interest – for 25% of the company. All that publicity wouldn’t have done HandOut Gloves any harm, either!
Dip Into Your Savings
Often, financing a venture in your retirement days doesn’t have to rely on outside investment. Instead, you can simply use money you already have.
Except instead of using the cash you’ve saved for a rainy day, you can put that pot to a far more exciting purpose – funding a unique new business venture.
Of course, there are several savings accounts that allow you to plan for retirement. And whether you’re able to (and whether you should) pull money from them to fund a venture depends on the type of plan you’ve selected.
Below, we’ve listed several of the most common retirement savings accounts – and how you can use them to finance a venture.
401(k) Plan Loan
One of the most common retirement accounts in the US, the 401(k) plan is a company-sponsored savings pot with a wealth of tax advantages. If you’re already in retirement, you can use these funds for whatever purpose you see fit – including financing a venture.
If you’re a younger retiree, though – and you haven’t yet reached the age of 59½, when you can withdraw your 401(k) plan funds without paying a penalty tax – you’ll want another way of accessing that money. Particularly if there’s a venture you want to finance now, rather than later.
If this is the case, you might be able to access a 401(k) plan loan. This allows you to borrow 50% of your account’s value, or $50,000 – whichever is the smaller amount.
A 401(k) plan loan isn’t taxable – nor will you pay a penalty to access those funds. It doesn’t affect your credit rating, either, and you can make payments automatically from your paycheck – making it a quick, simple, and convenient way to finance a venture heading into retirement.
If you’re already into your sixties, you’ll have the lion’s share of your retirement savings at your disposal. The Roth IRA, for example – another tax-free individual retirement account – gives you penalty-free access to your life’s savings once you hit the 59½-year age threshold.
However, if you’ve retired early – say, your fifties – you won’t yet be able to unlock your hard-earned Roth IRA retirement funds without paying a 10% fee.
Rollover as Business Start-Up (ROBS)
The IRS defines the ROBS plan as “an arrangement in which prospective business owners use their retirement funds to pay for new business start-up costs.” You won’t pay a penalty or any tax, and you’ll receive as big a chunk of your retirement savings as you’d like to plunge into a new business.
And, as Adam Bergman of Forbes notes, you’re also allowed to be personally involved in the business you create. This means drawing a salary and being an active part of the venture, without violating any of the plan’s rules.
Take Out a Loan
When you think of financing a venture – especially in retirement – taking out a loan often seems the most direct and appealing route to funds.
And often, it is – although not all loans are created equal. Below, we break down several loan options any retiree could consider to fund a venture.
Traditional Bank Loan
Though they won’t be right for all retirees, banks will still be the first port of call for many. For credit, they’re reliable and straightforward – providing you have a good credit history, plus some assets to your name.
However, there are several – more modern – ways to finance your venture than opting for a loan with a bank or credit union. We’ll unpack these next.
Small Business Association (SBA)-Backed Loan
The US Small Business Administration “helps small businesses get funding by setting guidelines for loans and reducing lender risk.”
The SBA offers a variety of funding options: including 7(a) loans, 504 loans, and microloans. However, they tend not to provide direct loans, except for businesses recovering from a declared disaster.
What the SBA is good at is matching you with a lender, via its ‘Lender Match’ feature. Simply head to the SBA’s ‘ Loans’ page, and enter your Zip Code to explore lenders in your area. From here, you can apply for a loan directly through one of these local lenders, who’ll approve – and help you manage – your loan.
It takes a few minutes to answer the requisite questions about your business. Often, you can be matched with one or more lenders within two days. Plus, more than 800 lenders across the US participate – so you’re exposing your new venture to a wide range of experienced and astute investors.
Peer-to-Peer (P2P) Lending
Matching people looking to invest money with people looking to borrow it – and using technology to facilitate it all? What could be more modern than that?
This is just what peer-to-peer (P2P) lending aims to do. Typically conducted via an app or online marketplace, these platforms (PeerBerry and Funding Circle are two notable examples) can help you place your prospective venture in front of people ready and willing to invest.
There’s no need to go through a traditional lender – like a bank, credit union, or building society – and, if your credit’s good, you can qualify for competitive interest rates.
If your credit isn’t so good, P2P lending can still be ideal. It certainly represents a better alternative to payday loans, or high APR credit cards. Plus, some P2P platforms – the apps and marketplaces that connect lenders with loan recipients – don’t always disclose the credit history of the applicant. This can be handy for retirees financing a venture, but who have poorer credit ratings or have previously been turned down for more conventional forms of credit.
Home Equity Loans and HELOCs
Home equity loans and HELOCSs (Home Equity Line of Credit) leverage your home’s equity – the difference between your home’s value and your mortgage balance – as collateral.
Offering super competitive interest rates and flexible repayments, these loans don’t have to be spent on refurbishing your residence. Despite most commonly used to fund home renovations and repairs, there are no rules on how to use the money.
If you want to spend yours on financing a venture in retirement, well… there’s nothing stopping you!
Invoice factoring is a form of finance where your business “sells” the invoices owed to it to a third-party provider, at a discount. It’s particularly useful for ventures in the recruitment and construction spaces. Or any industry in which lengthy payout times (think 90+ days!) are the norm.
What sets invoice factoring apart from the other forms of finance listed here is that you’re only receiving funds tied to monies you’re already owed. This means that it’s a safer, more secure form of funding. You’re less likely to get dragged into a cycle of debt, as you’re only borrowing against work you’ve already completed.
However, because factoring relies on you having existing invoices to sell – it’s only suitable for more established businesses. Your business needs a sufficient sales ledger to make it worth the finance provider’s time. If you’re at the start of your venture’s journey, it’s not the right funding option for you.
But, as your business grows, invoice factoring can be a scalable and savvy way of financing your retirement venture’s evolution.
When it comes to strictly modern ways to finance a venture in your retirement years, crowdfunding is at the top of the list.
Crowdfunding is a form of raising funds – for a business, project, or venture – from a large number of people (the crowd). Thanks to the internet, this is now easier to do than ever.
With popular sites such as Kickstarter and Indiegogo, you can get your idea in front of more people – selling your venture, and making it simple for them to donate. Crowdfunding is also a fantastic way of validating your idea – before you launch it. If no one’s interested, it might be a sign that there’s no market for your idea. In this case, you’ll want to know now, rather than after you’ve sunk time and money into developing the idea!
Crowdfunding platforms also allow you to offer your potential investors something in return for their donation. For example, if the venture you’re looking to finance in retirement is a feature film, you might offer investors of a certain amount a role as an extra in the film. If it’s publishing a book, you might offer donors an acknowledgement in print.
Of course, using a crowdfunding platform is the most simplest way of putting your idea for a venture out there. They’re well-known, well-established sites, with a lot of traffic.
However, they’re also expensive. Kickstarter, for instance, will take a 5% fee of the total funds you raise, if your campaign is successful. There’s also the payment processing fees of 3% + 20 cents per pledge. Indiegogo will also take a 5% cut.
With that in mind, you can crowdfund without relying on these platforms – you just have to get smart about it. Instead, you can create your own website using a website builder tool, such as Wix and BigCommerce – an idea made even more palatable by the fact that, these days, website costs are more affordable than ever.
On this website, you could publicize your proposed venture: discussing the reasons behind it, and giving people a simple way to donate funds.
You’ll still need to connect a domain name – but many website builders are an easy way to create an online presence for your venture. You can attract donors with a beautiful, bespoke site – without the egregious fees.
Enter a Contest
Okay, so it’s a bit of a long shot. But entering a contest can be a lucrative – if not the most sustainable – way of generating funds to finance a post-retirement business venture.
Every year, for example, FedEx runs its Small Business Grant Contest. The three winners each bagging a $50,000 ‘Grand Prize’, and seven ‘First Place’ contestants scoring $20,000 apiece. Not exactly chump change!
Start a Side Hustle
We know what you’re thinking: you didn’t retire, only to start working again!
But sometimes, a small side hustle can be a low-risk way of generating funds to fuel a commercial venture. Plus, the advent of technology and the internet has made it easier to make money than ever before.
You could teach English to students in China, in real time, via a video conferencing tool. You could become a taxi driver via one of the many ride-sharing apps, or start your own dropshipping business. The sky’s the limit!
Cash in Your Investments
When an alluring business opportunity calls – particularly a time-conscious one – you have to pick up the phone.
And, if you don’t have access to a reliable line of credit, a contest-winning idea, or the credit history to utilize some of the alternative funding providers we’ve discussed above, you might have to make some sacrifices.
That could mean cashing in your investments. Be they stocks, bonds, or an alternative asset (like gold), the best way to finance your next venture could be selling on your nest eggs.
Of course, this approach isn’t without risk – particularly if those investments are long-established and have tax advantages. But if you need money to finance your next venture – and you need it soon – it’s worth considering.
Financing a Venture in Retirement: Conclusion
Okay – so Pina Coladas and beaches are nice. But for a retirement that goes beyond the ordinary – there’s nothing like launching a brand-new business venture.
The trouble is, stretching yourself also means stretching your wallet. It can be a struggle to fund a business without a proper strategy in place.
However, we hope this article has helped. Here, we’ve shown that you don’t always need to rely on traditional forms of credit – bank loans, credit cards, or even family and friends – to get started.
Instead, try some of the more modern ways of financing your post-retirement venture: angel investors, crowdfunding, P2P borrowing, and contests. You can also cash in your investments, and cash out your retirement funds – sometimes before you’re even at retirement age.
Ultimately, there are many ways to fund a business post-retirement. Which one suits you will depend on your unique financial circumstances – there’s certainly no ‘one size fits all’ approach. And remember, always weigh up the pros and cons – the risks and the rewards – of any venture before committing to a line of credit.
Some of the best businesses, after all, were bootstrapped!
Article by Rob Binns, Due
About the Author
Rob Binns graduated with a BA (Hons) from Victoria University of Wellington, New Zealand. He's passionate about the payments space, and helping businesses find the right funding option for them.