You can get a business loan with a tax lien on file, but a traditional secured bank loan is almost always off the table until you take specific steps with the IRS. The workable paths fall into two groups: get the IRS to move its claim aside on the collateral your lender needs, or use financing products that don’t depend on being first in line against your assets.
Why Banks Decline When a Lien Is on File
A federal tax lien attaches to everything you own and everything you acquire later, including equipment, inventory, receivables, real estate, and intellectual property.1Office of the Law Revision Counsel. 26 USC 6321 – Lien for Taxes Once the IRS files a Notice of Federal Tax Lien, that claim is valid against nearly every creditor who comes after it.2Office of the Law Revision Counsel. 26 USC 6323 – Validity and Priority Against Certain Persons
A commercial lender writing a secured loan needs first position on the collateral. If the IRS already holds that spot, the bank can’t liquidate your equipment or collect your receivables ahead of the government if you default. From an underwriting view, there is nothing meaningful securing the loan. Strong revenue doesn’t fix this. It is a structural problem, not a soft one, and it usually triggers an automatic decline.
The lien also tells the lender something about how the business has been managed. Falling far enough behind on taxes that the government files a public claim is treated as one of the clearest markers of elevated default risk.
Fix the Problem With the IRS First
No lender worth approaching will move forward if you’ve done nothing about the tax debt. Establishing a formal resolution is step one, and there are two main routes.
Installment Agreement
An installment agreement lets you pay the balance over time. For businesses owing $25,000 or less in combined tax, penalties, and interest, the IRS has a streamlined online application for monthly plans of up to 24 months.3Internal Revenue Service. IRS Self-Service Payment Plan Options Larger balances require Form 9465 or a call to the IRS, along with detailed financial statements. Payments have to satisfy the full debt before the 10-year Collection Statute Expiration Date.4Internal Revenue Service. Topic No. 202, Tax Payment Options
An approved installment agreement matters to lenders. It shows the IRS has agreed to pause aggressive collection like levies and seizures, and it puts you on record as actively resolving the debt rather than ignoring it.
Offer in Compromise
An Offer in Compromise settles the tax debt for less than you owe. The IRS accepts one when it concludes the full amount is uncollectible or when there is a legitimate dispute about what you actually owe. The application demands a full collection information statement, review takes months, and the IRS rejects more OICs than it accepts. When one is accepted and the settlement terms are met, the lien is released. That’s a stronger signal to lenders than a payment plan, but the timeline often makes it impractical if you need capital now.
Three IRS Certificates That Make Lending Possible
Beyond a payment arrangement, the IRS has three specific tools that directly address the collateral priority problem. These are what actually let secured lending happen while a lien is still active. Submit applications for subordination or discharge at least 45 days before you need the certificate.5Internal Revenue Service. IRS Publication 784 – How to Apply for a Certificate of Subordination of Federal Tax Lien
Subordination
Subordination is the tool most directly useful for getting a new loan. The lien stays in place, but the IRS agrees to let a specific new lender jump ahead of the government’s claim on designated collateral.6Office of the Law Revision Counsel. 26 USC 6325 – Release of Lien or Discharge of Property That gives the lender the first position it needs to approve the loan.
The IRS will consider subordination when the proposed loan either increases the value of property already subject to the lien or helps you pay the tax debt down. Your application needs a lender commitment letter with the loan amount, terms, and specific collateral, plus an appraisal showing the government’s interest isn’t harmed by the arrangement.
Discharge
A discharge removes the lien from one specific piece of property. It is most useful when you’re selling an asset and need to deliver clear title, or when you want to free up one particular asset to use as unencumbered collateral for a new loan.
The IRS grants a discharge in a few situations. The common one: you pay the IRS an amount at least equal to the government’s interest in the property being released. Alternatively, the IRS will discharge property if the fair market value of your remaining lien-encumbered assets is at least double the unpaid tax debt plus any senior liens.7Internal Revenue Service. IRS Publication 783 – How to Apply for a Certificate of Discharge From Federal Tax Lien
Withdrawal
Withdrawal is the strongest of the three. Instead of rearranging priority or releasing one asset, it removes the public Notice of Federal Tax Lien entirely. You still owe the underlying tax, but the public record is gone, which clears the credit reporting damage and the red flags in lender searches.
One route to withdrawal is a Direct Debit Installment Agreement with at least three consecutive on-time electronic payments made. To qualify, your aggregate unpaid assessment must be $25,000 or less, the agreement must fully pay the debt within 60 months or before the Collection Statute Expiration Date, and you must be current on all other filing and payment obligations.8Internal Revenue Service. Internal Revenue Manual 5.12.9 – Withdrawal of Notice of Federal Tax Lien The IRS also withdraws lien notices after the debt is paid in full, and in cases where the Taxpayer Advocate determines withdrawal serves both the taxpayer and the government.9Taxpayer Advocate Service. Applying for Withdrawal of Notice of Federal Tax Lien
A withdrawal puts your borrowing prospects back on par with a business that never had a lien filed against it, at least from a public records standpoint.
SBA Loans Are a Special Case
If you’re targeting an SBA-backed loan, the rules are tighter than for conventional bank financing. SBA lenders have to verify that applicants are current on federal, state, and local taxes, and unresolved tax liens or delinquent federal debt usually result in an automatic decline.
An approved installment agreement can sometimes satisfy the requirement, depending on the lender and the specific program, but some lenders treat an actual lien filing as a separate disqualifying event beyond simple delinquency. The safest path is a withdrawal before you apply, so the tax resolution reads as a payment plan on the books rather than an active government claim against your assets.
Financing That Works Around a Lien
While you’re negotiating with the IRS, or when conventional bank credit stays out of reach, several products can bring in capital. Some sidestep the collateral priority problem. Others accept the risk and charge for it.
Accounts Receivable Factoring
Factoring isn’t a loan. A factoring company buys your outstanding invoices at a discount, advancing 80% to 90% of face value upfront and releasing the rest, minus fees, once your customer pays. Because it’s a purchase of an asset rather than a loan against one, the factor cares about whether your customers pay their bills, not about your balance sheet or tax situation.
Fees typically run 1% to 5% of invoice value per 30 days outstanding. A $50,000 invoice at 3% costs $1,500 if the customer pays within a month. Costs escalate quickly on slow accounts, but factoring is one of the more accessible options for businesses with active liens.
Merchant Cash Advances
A merchant cash advance provides a lump sum in exchange for a fixed share of future sales, collected through daily or weekly deductions from your bank account or card processor. MCAs don’t take a traditional security interest, so the lien priority issue doesn’t directly apply.
Cost is expressed as a factor rate, usually 1.1 to 1.5. On a six-month repayment, a 1.3 factor rate translates to an effective annual cost above 60%. Fast and broadly available, but expensive enough that a business already carrying tax debt needs to think hard about whether the math actually improves the situation.
Asset-Based Lending
Asset-based lenders advance working capital secured by receivables and inventory, typically at around 85% of qualifying receivables and up to 50% for inventory. They evaluate the collateral directly, often through a field audit.
The catch: an ABL lender still needs first position on its collateral. You’ll almost certainly need a lien subordination from the IRS before funding, so the lender’s UCC filing sits ahead of the government’s claim on the specific receivables and inventory backing the loan. ABL with subordination is one of the most practical paths to conventional-looking credit while a lien is still on file.
Private and Hard Money Lenders
Private and hard money lenders operate outside bank regulation and can accept a junior position behind the government. They price for the risk. Rates commonly run 10% to 18% annually and climb from there, terms typically run 12 to 36 months, and most will want a personal guarantee plus collateral beyond the business, such as a lien on the owner’s home.
This is last-resort capital. It works when the borrowed money will generate enough return to cover the cost and improve your overall position, such as a bridge loan to finish a profitable project that then funds the tax payoff. Using it to keep the lights on while the tax problem festers usually deepens the hole.
How Tax Liens Show Up on Business Credit
The consumer credit bureaus stopped including tax liens on personal credit reports in April 2018, so a lien won’t hit your personal score at Equifax, Experian, or TransUnion. Business credit reports are a different story. Dun & Bradstreet, Experian Business, and similar services still pick up liens from public records, and lenders check those reports as a standard step.
Even after the debt is paid and the lien released, the record can sit on business credit files for years. A released lien is less damaging than an active one but still invites questions. A formal withdrawal is the fastest way to clear the record, because it removes the public notice rather than just marking it satisfied. Keep in mind that the IRS generally has 10 years from assessment to collect a tax debt.10Internal Revenue Service. Time IRS Can Collect Tax Once that Collection Statute Expiration Date passes, the lien must be released, though waiting a decade with impaired credit is rarely a real strategy.
Don’t Hide the Lien on Your Application
Business owners under pressure sometimes convince themselves they can leave a lien off the paperwork. Lenders run public records searches as part of standard due diligence, so it usually surfaces anyway. If it doesn’t and the lender later discovers you concealed it, the consequences go well beyond losing the loan.
Making a false statement on a loan application to a federally insured institution is a federal crime under 18 U.S.C. ยง 1014, carrying penalties of up to $1,000,000 in fines and 30 years in prison.11Office of the Law Revision Counsel. 18 USC 1014 – Loan and Credit Applications Generally With SBA-backed loans, the federal exposure is even more direct. Beyond criminal liability, the lender can declare immediate default, accelerate the balance, and pursue the personal guarantee on top of the tax debt you already had.
Disclose the lien. Bring your IRS resolution plan with you, whether that’s an installment agreement, a subordination request, or an OIC in progress. A lender who understands the IRS tools available may still find a path. One who discovers a lie will not.