Insights into the world of small business lending and development

Why Having a Federal Tax Lien is Holding Your Business Back

This article is from Excelsior Growth Fund, a Venturize supporter.

What is a Federal Tax Lien?

A federal tax lien is filed by the federal government when you owe money in taxes to the IRS. These documents ensure that the government will receive the taxes they are owed by giving them a right or claim to your personal property. Liens look bad on your credit report and can be difficult to remove, but there are resources to help you resolve the issue.

What Can I Do to Prevent or Get Rid of Federal Tax Liens?

The best way to prevent having a Federal Tax Lien filed against you is to always pay your taxes in full so you are not indebted to the IRS. However, if that is not possible, there are payment plans available to pay off the outstanding taxes over a period of time. A lien will not be filed in this case if the agreement meets the requirements of the IRS.

Once a lien has been filed, it is important to take action as quickly as possible to get it removed. If you believe the lien was a mistake, you can appeal the lien and get it withdrawn. Withdrawing a lien removes it completely from your credit report. The IRS began a “Fresh Start” program which gives people the opportunity to remove their lien as long as certain criteria are met. Learn more about these criteria and about the steps to removing a federal tax lien from your credit report.

Why is a Federal Tax Lien Bad for My Business?

Federal tax liens are public records seen by credit reporting bureaus, so they will be on your credit report. Liens have negative implications because if banks or other lenders see a lien on your report, they will assume that you do not have the ability to pay back loans. This will result in either a loan with astronomically high interest rates, or the banks rejecting your application for a loan entirely. High cost debt will constrain your business’ cash flows because you are dedicating so much money to paying it off. This can make operational expenses harder or even impossible to keep up with.

About Excelsior Growth Fund

At Excelsior Growth Fund (EGF), our mission is to help New York businesses grow by providing small business loans and advisory services. As a nonprofit organization and a U.S. Treasury-certified Community Development Financial Institution (CDFI), we’re a responsible lender you can trust.

We understand that many small businesses can have difficulty getting traditional bank financing and EGF can help. Our products are affordable and flexible, and our advisory services can help you reach your business goals. Our signature product, the EGF SmartLoan™, provides up to $100,000 through a streamlined online platform.

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