If you ignore a notice from the IRS or the CRA about a tax due and you don’t pay your business taxes in a timely manner, not only will you incur penalties, but you’ll quickly discover that the government will put a lien on your business to get their funds. There are many ways tax liens can hurt your chances of getting funding.
First, if you don’t pay your debt to the IRS or CRA, they will file a Notice of Federal Tax Lien. This can show up on your credit report as a debt. Some lenders look at this more closely than others and not all liens show up on your personal credit report.
Lending requirements are determined by each lender, so whether or not this will hurt your chances of getting funding depends upon the lender. If a lien is filed, it can stay on your credit report for up to seven years.
The only way you’ll know for sure how a lien has impacted your credit score is by getting a copy from each of the major three reporting agencies and seeing what is listed and how your numbers line up.
Viability of Business
Some lenders will look at a lien and wonder how viable your business is. For example, if you’re using business equity to try to secure a loan and you owe most of that equity to a tax lien, then just how viable is your business?
If you don’t already have a payment scheduled worked out with the IRS or CRA to pay off your debt, you’ll want to do that before seeking a loan of any type. This will at least show a lender that you are making regular payments and reducing the debt.
Shows Pattern of Past Payment Issues
Another thing to consider is that you are likely in the tax lien situation because you failed to make regular quarterly payments or didn’t resolve the issue immediately, especially if you owe a large amount to the government.
Some lenders may look at this as a history of not paying your bills on time and be reluctant to give you a loan.
Fortunately, there is a way out of the horror and darkness of a tax lien. In addition to making arrangements to reduce that debt, you can secure funds you might need through a merchant cash advance. Also, although it is unlikely that the government will take your business they are most likely to take out a lien and try to arrange payments from you.
Disclaimer: A merchant cash advance is the purchase of future credit card or debit card sales and is not a loan product.