dave-christiansonDave Christianson and the Never-Ending Game of Catch-Up

Nobody likes to play catch-up…but we’d like to relay a cautionary tale about a client of ours whose initial funding choices caused him to do just that.

The time was three years ago, and the place: Santa Fe, New Mexico. Dave Christianson and his wife decided they wanted to fulfill a dream and open a frozen yogurt business. They explored a handful of established fro-yo franchises before determining that none of them would do. They opted instead to start from scratch with their own business and do things the way they’d always envisioned.

“My wife wanted to have something that was fun for the family – something that was unique and not ‘cookie-cutter,’” Dave said.

After writing up a comprehensive business plan, Dave marched into his local bank where both he and his plan were well received…but apparently not taken very seriously. After nearly two months, the bank had done nothing to move the loan application forward.

Not wanting to lose valuable time, Dave reluctantly decided to dip into his retirement and took out a $50,000 401(k) loan (the maximum amount he could borrow). Meanwhile, he qualified for a $25,000 grant, but the bank failed to submit the paperwork on time and he lost it.

“It was sort of frustrating,” Dave shared, putting it mildly.

The bank finally did come through on the SBA loan a few months later. This enabled Dave to open the doors to his yogurt biz but it also strapped him with a $1,500 per month loan payment on top of his $1,100 monthly 401(k) loan payment.

The Trap: Before Dave could pay himself every month, he had to make his $1,100 401(k) loan payment and his $1,500 SBA loan payment. In the first few years of any business, this lack of cash flow can be crippling. For some, it can be the difference between failure and survival.

About to compound Dave’s problem was the upcoming winter season – a historically slow time for the frozen dessert segment. Without working capital in reserve, it was setting up to be a long, cold winter ahead.

Thus, the never-ending game of catch-up began…

CatchFire Funding Enters Dave’s Story

Knowing he wasn’t going to get ahead when a painful amount of his profits were going out the door every month, Dave sought other options.

He participated in an online business forum, where he first heard about the self-directed 401(k) funding process. Intrigued by the thought of once again accessing his retirement money – only this time without paying taxes or penalties – Dave set out to do his own research and found CatchFire Funding.

After an initial conversation with Bill Seagraves, Dave learned that utilizing a self-directed 401(k) would not only enable him to pay off his SBA loan, but it would provide the working capital he would need going forward.

“I couldn’t believe what I was hearing – it was like, it was the answer to my prayers,” Dave said.

In addition to the immediate benefits for his business, Dave realized that he would be able to take control over the future of his 401(k). After losing nearly $65,000 in 2008, there was no love lost for the stock market.

“I knew there was no way I wanted to keep that money in my 401(k) because, I just don’t feel good about the economy,” Dave said.

This is where the true entrepreneurial spirit shows. Dave had enough faith in himself and his business to know that he would not only be able to pay back his retirement funds, but that he could do a better job of making that money grow over time.

“It’s a good way to make your money work for you – you’re basically being your own bank, to some extent. You still have your retirement fund that you can control yourself rather than someone else,” Dave said. “I tell ya, each time I wasn’t making those combined $2,600 monthly loan payments, I say thank you, Bill!”

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No longer trapped by their debt, the future is wide open for the Christiansons and their frozen yogurt business. They may expand and open another store; or they may just enjoy running the one store and sell it for a profit down the line when they’re ready to retire. The important thing is that they now have choices. They took back control of their finances and put an end to the never-ending game of catch-up.