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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.
Keep these factors in mind when comparing your tax debt loan options:
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.
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.
How else do business loans affect my taxes?
Think a tax debt loan is right for you? Here are two perks to keep in mind:
Consider these potential drawbacks before taking out a tax debt loan:
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 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:
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:
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.
Aliyyah Camp is a writer and personal finance blogger who helps readers compare personal, student, car and business loans. Aliyyah earned a BA in communication from the University of Pennsylvania and is based in New York, where she enjoys movies and running outdoors.
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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.
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