Self-directed IRA lending increases by 131.1%

Data recently released by Guidant Financial Group indicates that private loan investments inside self-directed IRAs has increased by 131.1% since 2005. By comparing a 2005 survey of Guidant self-directed IRA and real estate IRA clients against a similar 2007 survey, the financial services company was able to document what it had already suspected: a dramatic spike in private lending apparently in response to today’s tight credit market.

It’s not surprising that individuals and businesses are turning increasingly to private lenders who can often beat the interest rates and qualifying standards of skittish lending institutions.

The fact that Guidant’s clients, who can self-direct IRA funds into both traditional and non-traditional investments, are choosing notes and/or personal loans over many stock market investments is further evidence that, during shaky economic times, investors place their faith (and funds) in potentially more secure assets. Most of these loans (i.e., second mortgages, hard-money loans, etc.) are secured by real property. And, even if that property isn’t worth quite what is used to be, it can still provide a level of security superior to stock market investments . . . which is the reason many inventors turned to self-directed IRAs in the first place.

A Third of New Business Owners Using IRA Funding Are Age 45-50

Survey data released this week indicates that nearly one-third of new business owners using IRA or 401(k) funds to finance their purchase are aged 45-50. The results were gleaned from a survey of business owners who used Guidant Financial Group’s 401(k) small business financing vehicle to launch their enterprise as an investment inside their retirement account. Guidant is a Seattle-based provider of self-directed IRAs and alternative business financing vehicles utilizing retirement funds.

There could be many reasons for this statistical result. The most obvious is that the retirement-fund equity needed for financing a private business usually isn’t available until people have worked for several years. The skills required over those years may also add to the confidence necessary for venturing out on one’s own.

Considering that a 2006 study by Merrill Lynch showed that 71 percent of Baby Boomers intend to keep working after retirement age, there are some who want to get a jumpstart on their future self-employment by investing in a business before they leave their current “regular” jobs.

Others included in this age group are those who, due to current job insecurity or unexpected lay-offs, have taken the leap into self-employment earlier than they originally intended.