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Key things to know about tax liens

On Behalf of | Jun 16, 2022 | Tax Liens


For many small businesses, debt is an inevitable part of operations. Not many people have the capital to make purchases in cash or pay their bills simultaneously. However, accumulated debt and unpaid taxes can have a devastating outcome for a business of any size. One of the consequences is the dreaded tax lien. All business owners and financial officers should understand the implications of a tax lien and how it affects your financing options.

The implication of tax liens

When you don’t pay your taxes, the Internal Revenue Service is within the law to file a written claim to your business. Failure to pay what you owe in taxes may force the government to enforce the tax lien by seizing your property and business to honor the debt.

A tax lien ensures the government is paid first before all your creditors. In this scenario, if your business fails, the government is guaranteed payment, and other lenders may end up with nothing. 

Personal property tax liens

Creditors are often unwilling to lend money to a company if it has a tax lien. If you have tax liens on your personal property, your business can be affected as well. Creditors assess the individual and their company to determine if they will likely pay them back. Therefore, a personal lien might make your business appear as a risky investment that may not be worth the trouble to the lender.

The impact on your financing options

A tax lien may affect your creditworthiness and financing options. Individuals with a track record of paying their debts and taxes usually appeal to lenders. However, this is not to say that a tax lien automatically disqualifies you from borrowing. It only means that you will have a smaller pool of creditors to choose from, which isn’t ideal for a business that wants to grow.

How to manage a tax lien

There are several avenues to explore when addressing a tax lien. The most important thing is to resolve things as quickly as possible to minimize the impact on your business.

Repay your lien

The most straightforward way of alleviating any tax lien-related issues is to repay the lien as quickly as you can. You can work with the IRS to find a suitable repayment plan to minimize the disruption to your business. To avoid future complications, ensure tax filings are always up to date and paid on time.

Review the lien for any possible mistakes

Mistakes can happen, and the IRS could have made an error when filing your lien. If you feel there was an error in the lien, address it immediately with the IRS. 

Look for alternative lenders

If you can’t afford to pay your lien or wait until the IRS clears it, you can source funds from alternative sources that are risk-tolerant. You can also borrow from family or friends or set up fundraising ventures until you are able to secure traditional business financing loans. 



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