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Loans to pay small business tax debt

Choose from a variety of financing options to pay your outstanding tax bill.

Before you find yourself in trouble with the CRA, you may want to explore a range of loan options to ease the financial pressure. Covering a tax debt as a small business can have a damaging impact on your cash flow and operations. If your business has a large tax debt that you can’t pay by the deadline, financing could be an option to explore.

Before you consider a loan

Even if you can’t afford to pay your taxes, you should still file them before the deadline. Once you’ve filed, the CRA will send you a notice of assessment which will determine how much you owe. If you can’t afford the amount, contact the CRA. Together, you can come up with a mutually agreeable repayment schedule.

If you’ve come to an agreement with the CRA but you still find yourself unable to cover the costs later down the line, you could potentially turn to financing. Since you’re already in debt with the CRA, lenders will likely view you as a high-risk borrower – which means loan approval might not be on the cards.

If you’re unable to get a loan or any financial help at all, you may have to file a consumer proposal or, worst case, file for bankruptcy.

What financing options can I consider?

Depending on your business’s needs, as well as how much you owe in outstanding taxes, you could consider the following types of financing:

  • Short-term business loan. If you know your business will be able to make up for the amount it owes in taxes within a few months’ time, a short-term loan of one to two months could help ease the financial burden.
  • Term loan. If you need a longer time period to pay the amount back, you could consider a term loan. Terms typically range from three months to five years, giving you plenty of flexibility to choose a term that works for your needs.
  • 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 around 85% of the total value of your invoices to settle your tax debt.

Compare business loans

While most lenders will allow you to use your funds for any legitimate business expense, double check before applying that you’re able to use the funds to pay off outstanding tax debt. Since you’re already in debt, you may have a harder time getting approved for a term loan.

Name Product Interest Rate Loan Amount Loan Term Minimum Revenue Minimum Time in Business Loans Offered
SharpShooter Funding Business Loan
Prime pricing from 9.00%
$500 - $250,000
6 - 120 months
$10,000 /month
100 days
Unsecured Term, Merchant Cash Advance, Invoice Factoring
To be eligible, you must have been in business for at least 100 days with a minimum of $10,000 in monthly deposits.

SharpShooter provides capital to small businesses that are underserved by banks and credit unions. It measures overall business health and potential rather than focusing strictly on traditional metrics. Fill out a simple application and get pre-approved in minutes. Receive your funds within 24 hours.
Swoop Funding Business Loan
4.00% - 25.00%
$1,000 - $5,000,000
3 - 60 months
$10,000 /month
24 months
Term, MCA, LOC & more
To be eligible, you must have been in business for at least 24 months and have a minimum of $100,000 in annual revenue.

Swoop partners with banks and alternative lenders to match your business with the right funding options. Register for free and browse your offers without affecting your credit score.
Lending Loop Business Loan
Starting at 4.96%
$10,000 - $500,000
3 - 60 months
$8,500 /month
12 months
To be eligible, you must have been in business for at least 12 months and have a minimum of $100,000 in annual revenue.

Lending Loop is Canada’s first regulated peer-to-peer lending platform. Complete an application in 5 minutes. Once you accept your loan offer, investors will begin to fund your loan on the marketplace. Your loan will be transferred to your bank account when it is fully funded.
OnDeck Business Loan
8.00% – 29.00%
$5,000 - $300,000
6 - 18 months
$10,000 /month
6 months
Secured Term, Line of Credit, Merchant Cash Advance
To be eligible, you must have been in business for at least 6 months with a minimum monthly revenue of $10,000.

OnDeck offers fast and simple financing. Apply in less than 10 minutes with your basic business information and see your loan offers without hurting your credit score. Get approved within 1 business day, and choose your term, amount and payback schedule once approved.
Loans Canada Business Loan
Prime Pricing from 9.00%
$2,000 - $350,000
3 - 60 months
$4,166 /month
100 days
Unsecured Term
To be eligible, you must have been in business for at least 100 days, have a credit score of 410+ and show a minimum of $4,166 in monthly deposits ($50,000/year).

Loans Canada connects Canadian small business owners to lenders offering financing up to $350,000. Complete one simple online application and get matched with your loan options.

Compare up to 4 providers

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 the rate you’re offered will generally depend on your business’s revenue, time in business and your personal credit score.
  • Fees and other charges. Fees and charges associated with your 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 a small amount – will show up as a red flag 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 your loan? Because of this, tax debt will affect the loan terms you’re offered – if you’re offered terms at all.

This may limit your financing options to short-term business loans that can be used to quickly cover big expenses. Otherwise, lenders offering term loans 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?

You can deduct interest paid on any money borrowed for a legitimate business purpose, however you cannot deduct the principal part of a loan. Since you’re using the money to pay off an outstanding tax bill, it’s best to consult a tax accountant or other expert for more information.

How else do business loans affect my taxes?

Are there benefits of taking out a loan to pay taxes?

There are some benefits to using a loan to pay off outstanding taxes:

  • Cover your debts. If you can’t arrange a payment plan, a loan will help your business continue operating while you budget for loan payments.
  • Get professional tax help. Some loan providers could help you get in contact with a representative who can help you navigate CRA documents and regulations, as well as help you learn about other important information.

What drawbacks should I be aware of?

Consider these potential drawbacks before taking out a loan to pay taxes:

  • Fees and charges. Some lenders charge high fees and interest for loan products. Since you could be seen as a risky borrower due to already owing money, you could be offered unfavourable rates and terms.
  • 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.

Bottom line

When tax time is upon you and your business doesn’t quite have enough to cover it, a loan could be the difference between owing the CRA 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

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