Back Taxes and Bank Loans
Back Taxes and Bank Loans
Back Taxes and Bank Loans
Dealing with back taxes while trying to secure new business financing can be challenging. Most conventional lenders and SBA programs have strict policies around delinquent taxes, and understanding these rules early can help you avoid surprises and wasted time.
General Lender Stance on Back Taxes
Banks are generally reluctant to lend money specifically to pay off past-due taxes. They view unpaid taxes as a red flag and often have internal policies that make delinquent tax debt an ineligible use of loan proceeds. When applying for a loan, lenders will review your most recent tax returns (typically the last three years). Filing an extension is allowed, but you will usually need to show that you have paid estimated taxes or set aside sufficient funds to cover the amount due.
SBA Rules on Back Taxes
The SBA has clear guidelines:
Loan proceeds cannot be used to pay past-due federal, state, or local payroll taxes, sales taxes, or other taxes that the business is required to collect and hold in trust.
However, the SBA does allow the payoff of delinquent business income taxes if the borrower has an approved payment plan with the IRS (or state agency) and is current on all payments under that plan.
Any payoff of the tax debt is made directly to the taxing authority as part of the new loan closing.
When a Tax Lien Is Involved
A tax lien adds another layer of complexity. Conventional lenders often require the lien to be cleared before approving new financing. SBA loans can sometimes be more flexible — it may be possible to include the payoff of the existing tax lien (under an approved payment plan) as part of a larger acquisition or expansion loan. This can combine the debts into one new loan with a longer term, making payments more manageable.
Key Takeaways for Business Owners
Address tax issues as early as possible when planning any major financing or acquisition.
Having an approved payment plan in place and staying current on it significantly improves your options.
Documentation and transparency are critical — lenders will scrutinize tax history closely.
In some cases, wrapping tax debt into a new, well-structured loan can be a practical solution, especially under SBA guidelines.
Back taxes can arise for many reasons — divorce, illness, business setbacks, or simply life events. They are more common than most owners realize. The important thing is understanding your options and taking proactive steps to resolve them.
At AdvisorBox, we help business owners navigate financing realities, including situations involving back taxes, so they can pursue growth, acquisitions, and transitions with clearer paths forward.