When your business forgets or cannot afford to pay taxes to the IRS, they can file a lien against your company. What is a tax lien? It’s a government claim on your assets over other creditors. Failing to file on time and failure to pay your taxes in full results in a lien. The IRS can place a lien against your business as soon as 10 days after sending a Notice and Demand for Payment. This lien remains in place against your business until the taxes owed (and the additional fees and penalties) are paid in full, or your business may be eligible for a discharge, subordination, or withdrawal.
Tax Liens and Business Funding
A tax lien on your company can block your access to business funding from traditional lenders, like banks. Traditional lenders want to be sure that they have priority claim on your assets as collateral. If something were to happen to your business, they want the option of recuperating their costs. An online lender may still offer your business an online business loan, but the interest rates associated with online lenders are typically much higher than traditional bank loans. What can your business do?
Tax Liens and Working Capital Funding
Invoice factoring can ease the process of an IRS tax lien. Factoring companies will still offer your business the funding you need despite existing or past tax liens. By selling your receivables and turning your open invoices to cash, you can pay back the IRS on the taxes you owe while growing your business at the same time. Your personal or business credit score will not hold you back from the business funding necessary to grow.
How Does Factoring Work?
Accounts receivable funding, also known as factoring, is a simple method to improve your cash flow without creating debt on your balance sheet. You make a sale to a company and issue 30 or 60- or 90-day credit terms. Typically, you would have to wait the entire duration of the credit terms to be paid for that sale. This can back up new orders, product expansions, or new hires when you don’t have the available working capital. Eagle Business Credit, a factoring company, would purchase your open invoice at a discount, provide your business the money immediately, and collect from your customer after the already agreed upon credit terms.
Tax Liens and Invoice Factoring Services
With factoring fees as low as 1%, Eagle Business Credit offers your company a simple method of business financing to get out of the hole that an IRS tax lien may cause. Eagle Business Credit has funded businesses with an IRS tax lien. The IRS would need to issue a subordination to Eagle Business Credit, giving us the first position on the invoices. The incentive for the IRS to issue a subordination is dependent on the payment plan you devise with them and how invoice factoring will increase your chances of paying off the tax debt. After the IRS agrees to the subordination, we can then begin financing receivables. It’s that simple.
Need funding and have a lien on your business?
Want to know more about the IRS, paying back taxes, and your business funding options? Ian Varley discusses payroll and taxes with Dave Olsen from Northstar Payroll. Watch Episode 1 of The Money Factor here: