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Tax debt loans are short-term financial solutions specifically tailored to help small- to medium-sized businesses settle outstanding tax debt. Terms are also usually more flexible, allowing business owners to set the pace at which they repay the loan.
These are especially handy if you know your business will be able to make up for the amount it owes in taxes within a few months’ time. And in addition to paying taxes, they can also be used to cover employee wages, day-to-day expenses and unpaid bills.
What should I consider when looking for a tax debt loan?
Keep these factors in mind when comparing your tax debt loan options:
Secured versus unsecured loans. While you can potentially get a business loan without providing any security, a secured loan can potentially lead to longer loan terms and lower interest rates.
Interest rate. Interest rates vary from one lender to the next, but will generally depend on your business’s revenue and age as well as your personal credit score.
Fees and other charges. Fees and charges associated with your tax debt loan may have a noticeable effect on how much you end up paying over the course of the loan, so make sure you review the fee structure before you apply.
How does tax debt affect my ability to get a business loan?
Tax debt, even small amounts, will show up as red flags to lenders. Many lenders may see your business as a risk — after all, if you can’t afford to pay your taxes, how can you afford to pay for your loan? Because of this, tax debt will affect the loan terms you’re offered, if you’re offered terms at all.
This limits your options to short-term business loans that can be used to quickly cover big expenses. Otherwise, long-term lenders like banks may impose higher interest rates, deny offers for unsecured loans and only offer short repayment periods, all of which can greatly impact your ability to repay a loan in the future.
Are tax debt loans tax deductible?
It depends. If a business is paying interest on a loan, where the loan was taken out for the purposes of maintaining that business, then you may be able to deduct those interest payments from your taxes. If the continuance of your business, and therefore your ability to earn an assessable income, is dependent on the business paying off its tax debt, then a loan used specifically to pay off tax debt might also be tax deductible.
As with all large financial decisions for your business, consult a tax accountant or other expert for more information.
Think a tax debt loan is right for you? Here are two perks to keep in mind:
Cover your debts. If you can’t arrange a payment plan, a tax debt loan will help your business continue operating while you budget for loan payments.
Get professional tax help. Some tax debt loan providers assign you a representative who can help you navigate IRS documents and learn about other important information.
What drawbacks should I be aware of?
Consider these potential drawbacks before taking out a tax debt loan:
Fees and charges. Some lenders charge high fees for providing tax debt loans and related services, so make sure to check what costs you’ll have to pay when you apply.
Compounding debt. Taking on another loan to cover outstanding debts can be risky — you could potentially start a cycle of debt that is difficult to break.
What other loan options can I consider?
If you’re not sure a tax debt loan is right for your business, you may want to consider one of these alternatives instead:
Invoice financing
Invoice financing uses outstanding invoices to fund cash advances before the invoice is paid. If you’re waiting on payment from invoices that could help you pay your tax debt, this could be an option to consider. Depending on the lender, you could borrow up to 85% of the total value of your invoices to settle your tax debt.
Advantages of this option include:
Fast approval.
More accessible than other loan types.
No real estate security necessary.
Unsecured business loans
Unlike secured business loans, unsecured loans are granted without property or other valuable assets needed for collateral. Instead, the overall state of your business is evaluated and the loan may be granted if the lender feels you can honor your repayments. The terms differ depending on the lender, and repayment periods vary between one and seven years.
To qualify, lenders may consider:
How long you’ve been in business.
Your personal and business credit history.
Your business’s turnover and cash flow.
Bottom line
Please share your thoughts:
All responses are collected anonymously and used for internal data purposes only.
What is your primary need for a business loan?
When tax time is upon you and your business doesn’t quite have enough to cover it, a tax debt loan could be the difference between owing the IRS a huge amount at once and paying for that same amount over time. However, many short-term business loans that are used to cover taxes require daily payments with high interest rates, so compare your business loan options to make sure you’re getting the best deal.
Frequently asked questions about tax debt loans
Eligibility criteria varies between lenders. Usually, providers require your business to have a steady monthly revenue and to have been operating for at least two years.
Some lenders allow you to use proceeds from a tax debt loan for other purposes, but it will depend on your loan terms. Check with your lender to be sure.
This depends on the type of loan you’re approved for. Generally, loan terms are available for periods from one to seven years, though some lenders may offer shorter or longer terms.
Aliyyah Camp is a SEO content strategist and former publisher at Finder, specializing in consumer and business lending. Her writing and analysis has been featured in CentSai, the Dough Roller and the Chicago Tribune. She holds a BA in communication from the University of Pennsylvania.
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I own and operate a small business. I now owe taxes I cannot immediately pay. I can afford a monthly payment, but the IRS is tacking on a lot of money for being delinquent. I have now hired a CPA so that I don’t fall into this next year. However, today I am looking for a loan to pay the IRS immediately. I have bad credit from my student loans and medical. I am not figuring out how to get a loan with my personal low credit score.
Finder
JoshuaSeptember 1, 2018Finder
Hi Nikol,
Thanks for getting in touch with finder. Sorry to hear about your situation. I hope all is well with you.
Regarding your question, it is true that you might have limited options when applying for a loan while you have a low credit score. However, there will still be other loan options that you may want to consider. Click on that link and you’ll be redirected to a page where there’s a table that allows you to conveniently compare providers who lend money to people who have bad credit. Once you found the right one for you, click on the “Go to site” button to learn more or initiate your application.
Please review the criteria, details of the loan product and contact the lender directly to discuss your loan options and eligibility.
I hope this helps. Should you have further questions, please don’t hesitate to reach out again.
Have a wonderful day!
Cheers,
Joshua
RichDecember 13, 2017
I have some tax debt and can afford a sizable monthly payment. Are there companies that will actually help in this scenario or am I wasting my time? The first one I called, Ondeck said they couldn’t help because of my job as a retirement advisor. Thx for your time.
Finder
RenchDecember 18, 2017Finder
Hi Rich,
Thanks for your inquiry. Please note that we are not affiliated with any company we feature on our site and so we can only offer you general advice.
The lender’s listed offer business loans which is a suitable choice for business owners. However, the eligibility criteria will vary between lenders so you need to check the minimum qualifications before applying.
Usually, lenders will ask for key financial information about your business in making a decision on whether to accept or reject your application. If you can’t qualify with any of the lenders above, you can compare business loan options from other lenders that might work for you.
Compare the best business cash flow loans in 2023.
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We update our data regularly, but information can change between updates. Confirm details with the provider you're interested in before making a decision.
I own and operate a small business. I now owe taxes I cannot immediately pay. I can afford a monthly payment, but the IRS is tacking on a lot of money for being delinquent. I have now hired a CPA so that I don’t fall into this next year. However, today I am looking for a loan to pay the IRS immediately. I have bad credit from my student loans and medical. I am not figuring out how to get a loan with my personal low credit score.
Hi Nikol,
Thanks for getting in touch with finder. Sorry to hear about your situation. I hope all is well with you.
Regarding your question, it is true that you might have limited options when applying for a loan while you have a low credit score. However, there will still be other loan options that you may want to consider. Click on that link and you’ll be redirected to a page where there’s a table that allows you to conveniently compare providers who lend money to people who have bad credit. Once you found the right one for you, click on the “Go to site” button to learn more or initiate your application.
Please review the criteria, details of the loan product and contact the lender directly to discuss your loan options and eligibility.
I hope this helps. Should you have further questions, please don’t hesitate to reach out again.
Have a wonderful day!
Cheers,
Joshua
I have some tax debt and can afford a sizable monthly payment. Are there companies that will actually help in this scenario or am I wasting my time? The first one I called, Ondeck said they couldn’t help because of my job as a retirement advisor. Thx for your time.
Hi Rich,
Thanks for your inquiry. Please note that we are not affiliated with any company we feature on our site and so we can only offer you general advice.
The lender’s listed offer business loans which is a suitable choice for business owners. However, the eligibility criteria will vary between lenders so you need to check the minimum qualifications before applying.
Usually, lenders will ask for key financial information about your business in making a decision on whether to accept or reject your application. If you can’t qualify with any of the lenders above, you can compare business loan options from other lenders that might work for you.
Best regards,
Rench