Securing a Business Loan With a Tax Lien




Smart businesses are always paying attention to their tax obligations and working on ways to reduce their taxes. Unfortunately, a lot of companies run in to tax liens, which have a huge impact on future financing options for any company faced with a tax lien.

Tax liens are imposed on business owners who fail to pay their taxes on time. Before a tax lien occurs, the IRS will attempt to negotiate a payment plan for the unpaid taxes with the business. If this fails and the company still does not pay its tax obligations, the IRS will impose a tax lien. Following this imposition, a company will now have a public document that asserts the government’s right to seize and sell all business property to pay back the tax debt owed.

The reason that these liens hurt a company when it comes to future financing is because the IRS now has first priority in seizing all of the companies assets for failure to pay taxes. This means that lenders will now be increasingly hesitant to loan money to this company, since the financing company is now second in command to the IRS. If the company defaults on the loan and doesn’t pay its taxes to the IRS, the IRS will seize all of the company’s assets before the loan company can touch any of the assets. Therefore, the loan company would not be able to retrieve any collateral to back the loan.
As a general rule, businesses should strive to avoid tax liens at all costs. However, if a company does find itself in a situation where it has a tax lien imposed for whatever reason, securing financing for the company is not entirely impossible.

Finding Financing

When looking for financing for a company that has outstanding tax liens, the smartest place to start is with alternative lenders. Typically, traditional banks will not extend credit to any company until a lien has been entirely paid off and resolved. This is where companies, like Harbour Capital, come in.

Alternative lenders will require proof that the company is on a repayment plan with the IRS and will be reluctant to extend hefty credit lines to these companies. However, this is still an incredibly viable financing option for companies that may have gone through a rough patch, but are on the right track and now looking to expand.

It is reasonable to expect that, if financing is offered from an alternative lender to a company operating with a tax lien, the interest rate will be higher than if a loan was offered to a company without a tax lien. The important thing to keep in mind is that the interest rate should not be the sole-determining factor of whether a company takes a loan or not. For example, if a new excavator is going to be contracted out for a company at $90.00 per hour, and a higher interest rate requires the company to pay an extra $500 a month, it only takes a half of days worth of work with the new excavator to pay off the higher interest. The important consideration should be, “Will this piece of equipment make me money?”

In summary, getting an equipment loan for a company that is faced with tax liens is difficult, but not impossible. Here at Harbour Capital, we specialize in working with clients who have challenged credit and unfavorable credit history. We help companies who have tax liens secure financing to grow their business every single day because we see the value in helping companies who are on the right track, stay on the right track. Follow the basic few steps in the graphic above and secure financing to grow you company’s profits today!