Special Situations

    Business Loans With an Open Tax Lien: What's Possible

    BizBee Funding Editorial TeamUpdated June 8, 20268 min read

    Securing a business loan with an open tax lien is possible if you have a formal, active payment plan with the IRS or state, or if the lien is smaller than the requested funding amount. Most alternative lenders require at least three consecutive months of on-time payments toward the lien, though specific products like merchant cash advances or invoice factoring are more accessible than traditional bank loans in these scenarios.

    Key takeaways

    • You can qualify for funding with a tax lien if you have a documented installment agreement with the IRS or state.
    • Most lenders require at least three months of proven payments toward the lien before they will consider an application.
    • Merchant Cash Advances (MCAs) are the most common solution for businesses with active liens and lower credit scores.
    • Lenders may require the loan to be used, at least in part, to satisfy the tax lien to protect their collateral position.
    • Expect factor rates between 1.20 and 1.45 due to the increased risk associated with government senior claims.
    • Always provide your IRS Form 433-D or official payment plan letter upfront to avoid automatic denials during the audit phase.

    Who this is for

    This is for established business owners who have encountered a tax hurdle-often due to seasonal cash flow dips or accounting errors-and are now proactively managing that debt through a formal government payment plan. They need capital to continue operations or to bridge the gap while the lien is being satisfied.

    It is ideally suited for companies with strong monthly revenues (over $15k) that can absorb the slightly higher cost of 'alternative' capital. These owners understand that while the lien makes traditional bank funding impossible for now, staying liquid is the only way to eventually clear the debt and return to prime lending status.

    What you need to qualify

    While a tax lien adds a layer of complexity, specific benchmarks still guide the approval process for alternative funding.

    Requirement Typical standard
    Minimum FICO Score 500+ (Varies by product)
    Monthly Revenue $15,000+ minimum
    Time in Business 6 Months Minimum
    Lien Status Formal payment plan required (IRS Form 433-D)
    Payment History 3+ consecutive months of IRS payments
    Lien Amount Must be less than 50% of annual gross revenue
    Proof of Filing Current IRS/State transcripts required

    When this makes sense

    • You have a signed IRS installment agreement and have made at least three consecutive payments.
    • The funding will be used to pay off the lien, which will immediately improve your credit and lower future borrowing costs.
    • Your business has strong, consistent daily or weekly cash flow that outweighs the monthly lien payment.
    • The tax lien is small (under $25,000) relative to your overall annual gross revenue.

    When to be careful

    • You are in default on your tax payment plan, as this triggers aggressive government collection actions.
    • The tax lien is so large that your combined loan payments and IRS payments would exceed 30% of your net income.
    • You are trying to hide the lien; lenders will always find it during the public records search/background check.
    • The IRS has already begun seizing assets or levying bank accounts, as new lenders cannot take a junior position to an active levy.

    Need Funding Despite a Tax Lien?

    Navigating tax liens requires a specialized touch. Our team knows exactly which lenders in our 100+ partner network will work with your specific payment plan to get you the capital you need.

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