Any experience with ROBS?

February 06, 2020

by a searcher from The Ohio State University - Max M. Fisher College of Business in Cleveland, OH, USA

I'm curious if anyone has personal experience in utilizing ROBS (Rollover into Business Start-up) as a piece of financing their acquisition? I've talked with the major firms in the country that facilitate ROBS but I'd like to talk to an owner or two that has actually utilized ROBS as part of their deal. Specifically, I'm curious as to your feelings on the ongoing compliance required 12, 24, 36 months post acquisition. Essentially, was it worth it. Thanks!

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Reply by an intermediary
from Indiana University at Bloomington in Carmel, IN, USA

I have had many of my buy side clients use a ROBS. If you use one of the suggested firms, they do the compliance for you, but at a cost small cost. With the upfront costs, probably need to use at least $100K to be worthwhile. Is it worthwhile?, if that gets you a business to the deal table, it is a lot less costly than investors. The only negative long term is that the entity has to be a "C" corp. With the new tax laws, this has flattened out the annual tax issues , but if you pay back the ROBS (and especially if you don't and keep it a C Corp), convert to a "S" corp, then there is a 5 year lookback and will be taxed as a C, so you could have a double taxation when selling it: Ordinary income on the goodwill and then Cap gains on any distribution vs. just Cap Gains, so could be double.

Reply by a lender
in Yorba Linda, CA, USA

Have had many clients use ROBS for their acquisitions, and have not heard any complaints later down the line. Just FYI, SBA just made it a little more difficult to use ROBS with an SBA loan. The SBA is requiring "GP" processing of all loans involving ROBS in an effort to review the compliance of the ROBS. It will add an extra several weeks to the process and make SBA (instead of the bank) the decision maker on the loan overall. Apparently the reason for this, is that the agency began to notice that some of the vendors / service providers which structure ROBS, were not doing so in a compliant manner. I believe they were newer to the industry, so just beware of which vendor you select for this.

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