Gaining access to startup capital is often a huge hurdle. Nowmany entrepreneurs are turning to companies like BeneTrends Inc.,Directed Equity and Equity Trust Co. to get early access toretirement savings–without the normal penalties.

How does it work? Len Fischer, founder of San Diego-basedBeneTrends, explains his company’s four-step process. First, aC corporation is established for the new business, and a retirementplan is then created under the new C corporation. Next, funds arerolled over from the person’s existing retirement plan into theC corporation’s new retirement plan. Finally, the newretirement plan purchases stock in the C corporation, leaving thecapital in the business owner’s hands. This process takes abouttwo to four weeks and costs $4,800 plus state filing fees.

Don Patrick, managing director of Integrated Financial Group, afinancial planning firm in
Atlanta, offers the following advice to avoid potential problemswith this type of financing:

• Carefully research the company that carries out theprocess to make sure it’s legitimate.
• Get an IRS letter ruling that documents approval of yourindividual situation.
• Operate the C corporation properly, as there’s ahigher chance of being audited due to both the type of corporationand the type of financing used.
• Comply with the main principles of the EmployeeRetirement Income Security Act of 1974.
• Keep in mind that losses cannot be deducted if thebusiness fails.
• Employ a team of professionals. “Retain a CPA, anattorney and a financial planner, and let them work as ateam,” says Patrick. “This is still an area that’s[on] the fringe of things.”