MORE LIKE THISSmall-Business LoansSmall Business
Getting a small-business loan with a tax lien on your record is close to impossible. Yes, some online lenders may extend funding despite a tax lien if your sales and credit are stellar, but those are the exceptions and not the rule.
Your best course of action: Take steps to address the tax lien before applying for a business loan. You’ll have more loan options and be able to secure better rates and terms.
This article will help you learn more about tax liens, including what steps to take to get a business loan after a tax lien.
» MORE: Can't get a business loan? Consider these alternatives
How much do you need?
We’ll start with a brief questionnaire to better understand the unique needs of your business.
Once we uncover your personalized matches, our team will consult you on the process moving forward.
What is a tax lien?
Fail to pay personal or business taxes, including payroll, income or property taxes, and the government will place a tax lien on your property and financial assets, legally giving it first dibs to your wages, property and other assets if it needs to collect on your tax debt.
While liens don’t show up on your credit report, they're part of the public record and accessible to potential lenders. Having a tax lien on your business or personal property is a major red flag to lenders and will automatically disqualify you from most small-business loans.
Tax liens are released within 30 days once paid in full, including interest and fees. A release doesn’t automatically remove the lien from public record; that requires a withdrawal. To qualify for a withdrawal, you also need to:
Be in compliance for all tax returns, individual, business and informational, for the past three years.
Be current on estimated tax payments and deposits.
There are other options to resolve and withdraw the lien, if you qualify, including payment arrangements.
Ignoring a tax lien can lead to a tax levy, where the government seizes property and financial assets to pay off your tax debt.
How to get a business loan after a tax lien
Your business loan options will be extremely limited if you have an active tax lien, but there are steps you can take to improve your odds of funding.
1. Verify the lien is accurate
Even the IRS makes mistakes, so it’s important to confirm the amount of the tax debt owed is correct. You can also contact the IRS Centralized Lien Operation to verify a lien or search for liens online via the appropriate agency.
Liens on vehicles are held by your state’s department of motor vehicles, while property liens can be found via your county clerk, recorder or assessor.
Do you believe there's an error? Your lien notice will have instructions for how to challenge the filing. Act fast, though. Disputes often need to be filed within a specified time frame. The Taxpayer Advocate Service, an independent organization within the IRS, can also offer assistance.
2. Establish a repayment plan
Ideally, you can pay your tax debt in full to have the lien released and withdrawn. If that’s not possible, contact the IRS to set up a direct debit installment agreement. Once established, the IRS may withdraw your lien, assuming you meet the following requirements:
You’ve made three consecutive direct debit payments.
Your debt will be paid in full within 60 months or before the collection statute expires, per your installment agreement.
Your tax debt is less than $25,000 when you request the withdrawal.
You haven't defaulted on an installment agreement, current or in the past.
You can also request an offer in compromise, which settles your outstanding tax debt for less than the full amount. It can be hard to qualify for, though, and it isn't an option if you’ve filed for bankruptcy or are under audit.
3. Explore online lenders
Online business lenders tend to have more lenient underwriting criteria and some will extend a loan even if you have a tax lien, assuming you have an otherwise strong loan application. It helps to show you’re taking steps to resolve the lien.
If you're approved for an online small-business loan despite your tax lien, expect to pay higher rates and have less favorable terms than you would without the lien. And plan to refinance for better rates once the lien is resolved and withdrawn.
A word of caution: Be wary of alternative lenders that advertise “bridge loans” to pay your tax debt so you can then qualify for an SBA loan or other small-business loan. It will take time for the lien to be released and you still need to meet other qualifications for the lien to be withdrawn. Plus, there's no guarantee you’ll be approved for another loan right away.
FAQs
Yes! While traditional SBA lenders don't approve business owners with tax liens or judgments for SBA loans, alternative SBA providers, like National Business Capital, approve business owners with these issues for SBA financing every day.
Can I get a SBA loan with no revenue? ›
Business loans for startups with no revenue. If you're a startup — or any business — with limited funds, it's unlikely you'll be able to secure a traditional term loan or SBA loan. You may, however, be able to access these other financing solutions without money in the bank or revenue.
What is the easiest SBA loan to get approved for? ›
What is the easiest SBA loan to get approved for? Loans under the 7(a) program have a higher acceptance rate. And since most 7(a) loans are for $50,000 or less, it may be easier to get approved for a small amount with an Express loan. But you will still need to meet the minimum criteria to qualify and be approved.
What collateral is needed for a small business loan? ›
What can I use as collateral for a business loan? Cash is the most liquid form of collateral, while securities like treasury bonds, stocks, certificates of deposit (CDs) and corporate bonds can also be used. Tangible assets, such as real estate, equipment, inventory and vehicles, are another popular form of collateral.
Who is not eligible for SBA loan? ›
First and foremost, your business must be for-profit and operate within the United States or its territories. Non-profit organizations are not eligible for SBA loans. Additionally, you must have exhausted all other financing options, including personal assets, before turning to an SBA loan.
Does the government ever forgive SBA loans? ›
Business owners defaulting on their SBA loan can apply for loan forgiveness, but that does not guarantee the SBA will approve the request. It is more commonly referred to as an "offer in compromise". The SBA evaluates your case and discusses the matter with the lender.
What is the minimum revenue for a small business loan? ›
Minimum Revenue Requirements for Small Business Loans
Typically, you'll need at least $100,000 to $250,000 in annual revenue. Banks are risk-averse and look for businesses with a strong track record, making their revenue requirements higher than alternative lenders.
Can you get an SBA loan with no money down? ›
Yes, some SBA loan programs, such as the SBA microloan or SBA disaster loan program, don't require a down payment. Keep in mind that lenders who don't require a down payment will likely place more weight on your business plan, financial statements and other eligibility criteria.
Can I get a business loan with a 500 credit score? ›
Lenders may focus more on your personal credit history if your business is relatively new. Bad credit business loans typically require a personal credit score of 500 or higher.
What is the minimum credit score for SBA loan? ›
The minimum credit score required for an SBA loan depends on the type of loan. For SBA Microloans, the minimum credit score is typically between 620-640. For SBA 7(a) loans, the minimum credit score is typically 640, but borrowers may find greater success if they can boost their credit score into the 680+ range.
Many statistics say that large banks approve SBA loans at rates as low as 20-30%, while smaller banks approve SBA loans at around 40% or less. All this to say: SBA loan approval rates hover at half or below all loan applications that are submitted.
What is the minimum down payment for a SBA loan? ›
Many SBA lenders require you to provide a down payment of at least 10% of the loan amount. Lenders often require you to put money down upfront because it shows you have an investment in paying the loan back, thereby reducing their risk of working with your business.
How much SBA loan can I get without collateral? ›
The SBA will fund up to $50,000 in a 7(a) business loan without collateral. If you want to apply for more than $50,000, you'll have to provide some form of collateral, which could include business real estate or other assets.
What credit score is needed for a small business start up loan? ›
SBA-qualified lenders usually set their own criteria when assessing your eligibility. Most lenders will require a minimum FICO score of 620 or higher for their SBA Loans.
Which is the most common small business loan from the SBA? ›
The 7(a) loan program is SBA's primary business loan program for providing financial assistance to small businesses.
What happens if you owe the IRS more than $25,000? ›
You owe $25,000 or less (If you owe more than $25,000, you may pay down the balance to $25,000 prior to requesting withdrawal of the Notice of Federal Tax Lien) Your Direct Debit Installment Agreement must full pay the amount you owe within 60 months or before the Collection Statute expires, whichever is earlier.
What happens when IRS puts a lien on you? ›
A federal tax lien is a legal claim to your property (such as real property, securities and vehicles), including property that you acquire after the lien arises. If the IRS files a lien against your business, it attaches to all business property and to all rights to business property, including accounts receivable.
Can SBA take my tax return? ›
SBA may request that IRS reduce a debtor's tax refund by the amount of the debt, as authorized by 31 U.S.C. 3720A. Where available, administrative and salary offsets must be used before collection is attempted through income tax offset.
Are SBA loans protected from garnishment? ›
One way that the SBA can collect on your loan is through wage garnishment. Unlike with credit card companies, the government does not need to obtain a judgment against you before they can garnish your wages.
