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I have been away from this thread for a while.

So, at this point your $2M 401K is now invested in a business. How is this going to pay the bank loan?

Proceeds from the business will be taxable for federal and state corporate rates.

I do not see anything here that I have learned about 401Ks other than there are a number of ways to make them complicated.

If I wanted a business to run in the future, this method is a way to do it, but I believe there is more to it than this very brief explanation. Also, I wonder if there is an additional tax consequence to selling the business in the future.

If this scheme was so simple and was a guaranteed tax dodge, nearly everyone would do it.

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