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seamist 09-01-2015 12:42 PM

Expanding business in need of capital. Should I take from 401k?

Any advice is much appreciated!!!!! I am in independent contractor working for my mother's permanent hair removal business. I will own the business in 4 years when she retires... possibly sooner. These past 18 months have been extremely busy since I did some updates and advertising. We currently have a long waiting list for new clients, the majority of which are willing to wait. We share an office, I work 2.5 days and she works the rest. She is not ready to give up any of her days yet. I net an average of $500 per day.

I have decided that there should be enough business to sustain a second, more central, location 5 miles away for an additional 2-3 days a week. I have secured a very affordable sublet with a 1 year lease. To open this second location, I need about $5-6k to cover some new supplies, insurance, and to have a bit of a cushion. Not very much money at all. What are some options for obtaining the funds?

Since I am an independent contractor and I don't own the business yet, can I even get a business credit card or loan? If so, I only have "fair” (borderline good) credit due to issues from being laid off 7 years ago. Plus those funds could only go towards the business and not to personal if needed (i.e. if car breaks down). I am currently debt free and don't like the idea of getting back into debt if I don't have to.

My husband has a 401k which he is wanting to take money from. According to my calculations, we would be taxed 35% on that (due to our tax bracket and a 10% penalty). Should we take $9,500.00 out of the 401k and eat the 35% to get $6,000?

I have heard of ROBS account which would rollover 401k for funding business but that sounds like a lot of paperwork and red tape for the small amount that I need. And I think we would have to incorporate the business.

Thank you in advance for any advice!

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