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Getting a small business loan in Texas with a tax lien

On Behalf of | Jan 12, 2023 | Tax |

Failing to pay business taxes in full and on time in Texas can harm your finances, damage your company’s credit, and even jeopardize your personal and business assets. Undoubtedly, it is a bad sign that paints you as a risky borrower when applying for a small business loan. Even so, you may still be able to receive a small business loan but with some restrictions.

Tax liens and how they impact your ability to borrow money

When you fail to pay taxes, a tax lien is the government’s legal claim against your assets, such as property or bank accounts. Usually, before the IRS imposes a lien on your property, they will send you a notice of the amount owed and other relevant information. Then, if you still fail to meet your tax obligations, they can go ahead with collection proceedings such as wage garnishment or placing a lien on your assets.

Forcing the government’s hand like this also comes with extra costs, including penalties, interest due on the amount owed and a public record that shows your failed payment of taxes. In addition, these records can affect your credit score, cause issues in other areas of your business, disqualify you, or make it exceedingly difficult to receive a small-business loan in Texas.

Mitigating measures to take before applying for a loan

You can improve your odds of receiving a loan by taking steps to pay off the debt with the IRS. Start by gathering all relevant documents and tax forms that show your business’s financial situation. Then, you can negotiate with the IRS to set up an installment agreement to make manageable payments on the lien or pursue an Offer In Compromise (OIC).

Once you start making progress on paying off your tax debt and reducing liabilities, lenders will begin viewing you more favorably for borrowing money. However, you may still need additional collateral, such as property, vehicles or other assets, to get approved for a loan.

Experiencing such tax problems while running a business is common in Texas. However, your success determines how you deal with it and make your business find its footing again. Regardless, you can still get the funding you need to stabilize or grow your company.