Is it Possible to Get a Small-Business Loan With a Tax Lien?

Your best option is to address the tax lien before applying for a business loan. You'll have more loan options and will be able to get better interest rates and terms.

This article will teach you more about tax liens, including how to get a business loan after a tax lien.

What Exactly Is A Tax Lien?

If you fail to pay your personal or business taxes, such as payroll, income, or property taxes, the government will place a tax lien on your property and financial assets, giving it first dibs on your wages, property, and other assets if you fail to pay your tax debt.

While liens do not appear on your credit report, they are public information and are available to potential lenders. A tax lien on your business or personal property will automatically disqualify you from most small-business loans.

Once paid in full, including interest and fees, tax liens are released within 30 days. A release does not automatically remove the lien from the public record; a withdrawal is required. To be eligible for a withdrawal, you must also:

•Be in compliance for the last three years for all tax returns, individual, business, and informational.

•Keep up with estimated tax payments and deposits.

If you qualify, there are other options for resolving and withdrawing the lien, such as payment arrangements.

Ignoring a tax lien may result in a tax levy, in which the government seizes property and financial assets to satisfy your tax debt.

How To Obtain A Business Loan Following A Tax Lien

If you have an active tax lien, your business loan options will be severely limited, but there are steps you can take to improve your chances of funding.

1.Confirm That The Lien Is Correct.

Even the IRS makes mistakes, so it's critical to double-check the amount of tax debt owed. To verify a lien, you can also contact the IRS Centralized Lien Operation or search for liens online through the appropriate agency.

Vehicle liens are handled by your state's department of motor vehicles, whereas property liens are handled by your county clerk, recorder, or assessor.

Do you think there's a mistake? Your lien notice will include instructions on how to contest the filing. However, you must act quickly. Disputes are frequently required to be filed within a specific time frame. The IRS's Taxpayer Advocate Service, an independent organization within the IRS, can also help.

2.Make A Repayment Plan.

If you pay your tax debt in full, the lien will be released and withdrawn. If that is not an option, contact the IRS to arrange for a direct debit installment agreement. Once established, the IRS may release your lien if you meet the following criteria:

•You've made three direct debit payments in a row.

•According to your installment agreement, your debt will be paid in full within 60 months or before the collection statute expires.

•When you request the withdrawal, your tax debt is less than $25,000 USD.

•You have not defaulted on an instalment agreement, either current or previous.

You can also ask for an offer in compromise, which settles your outstanding tax debt for a lower amount than the full amount. It can be difficult to qualify for, and it is not an option if you have declared bankruptcy or are under audit.

3. Look Into Online Lenders

Online business lenders have more lenient underwriting criteria, and some will extend a loan even if you have a tax lien if you have a strong loan application otherwise. It helps to demonstrate that you are working to resolve the lien.

If you get an online small-business loan despite your tax lien, expect to pay higher interest rates and less favorable terms than you would without the lien. Also, once the lien is resolved and withdrawn, plan to refinance for better rates.

Be wary of alternative lenders who advertise "bridge loans" to pay your tax debt in order to qualify for an SBA loan or other small-business loan. It will take time for the lien to be released, and you must still meet other requirements for the lien to be withdrawn. Furthermore, there is no guarantee that you will be approved for another loan right away.