Need to pay your business tax debt? The right loan could help – here’s what you need to consider.
Covering a tax debt, no matter what size your business is, can have a damaging impact on your cash flow and your operations. If your business has a large tax debt that you can’t pay up front, tax debt loans could be an options to explore.
OnDeck Small Business Loans
Among the largest online business lenders offering term loans and lines of credit at competitive fixed rates.
- Minimum Amount: $5,000
- Maximum Amount: $500,000
- Loan Term: 3 to 36 months
- Simple online application process with fast decisions
- Dedicated loan specialists and loyalty benefits
- Must have been in business for at least one year with annual revenue of $100,000+
- Must have a personal credit score of 500+
What should you consider when looking for a tax debt loan?
Finding the right loan to cover your tax debt depends on your specific requirements. Comparing the following features should help you choose:
- Should you apply for a secured or unsecured loan?
While you can potentially get a business loan without providing any security, a secured loan will potentially mean longer loan terms and lower interest rates.
- What is the interest rate?
Secured loans typically charge lower interest rates compared to unsecured loans, but remember that interest rates will vary from one loan offering to another.
- What fees and charges are involved?
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.
- Can you make extra repayments and early payouts?
This is a convenient feature and one that can help you save on interest, but early repayments may come with fees.
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What loan options are available to business owners for settling tax debt?
Before you become personally liable for your business’ tax debt, you may want to explore a range of loan options to ease the financial pressure. Tax debt loans are one type of financing that may be useful, but are not the only one. Invoice financing, for example, is another option that may be worth considering in some situations.
The following loan types may be an option to consider if you need help paying off your tax debt:
Tax debt loans
Tax debt loans are short-term financial solutions specifically tailored to assist small to medium-sized businesses settle outstanding tax debt. Funds can also be used for:
- Employees’ wages
- Day-to-day expenses
- Settling unpaid bills
Repayment terms are also usually more flexible, allowing business owners to set the pace at which they reimburse the loan.
Invoice financing involves using outstanding invoices to get cash advances in between payment. 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 finance 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.
Lenders may consider:
- How long you’ve been in business
- The business’ turnover
- Cash flow
- Your personal and/or business credit history
How does tax debt affect my ability to get a business loan?
Your tax debt may impact the loan terms and whether you are approved at all for a business loan. Lenders may perceive you as a higher risk, and might:
- Impose higher interest rates
- Deny offers for unsecured loans
- Only offer shorter repayment periods
Are tax debt loans tax deductible?
Interest paid on loans taken out for the purposes of repaying tax debt, whether they are tax debt loans or other loans used for this purpose, are generally not tax deductible for individuals. However, it may be tax deductible for businesses.
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.
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.
Note that this information is general in nature, and it can be a good idea to consult a tax accountant or other expert for more information.
Find out what loans are tax deductible + more loan tax tips
The arguments for and against tax debt loans
What are the good and the bad points of getting a loan for your tax debt?
- Get help in difficult circumstances.
If you can’t arrange a payment plan, a tax debt loan will help your business to continue operating.
- Get professional tax help.
Some tax debt loan providers offer you a representative who can help you navigate IRS documents.
- Fees and charges.
Some lenders charge unreasonably high fees for providing tax debt loans and related services, so make sure to check what costs 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.