Business Financing For Companies With Tax Problems

Getting business financing in the current environment is very difficult. And if your company has tax problems, securing funding for your business is nearly impossible. There are two reasons why getting financing can be difficult.

Reason #1: You have cash flow problems

Most companies with tax problems also have cash flow problems. Either the company had problems, which is why they did not pay taxes, or the tax bill is so high that paying it would drain all the company’s working capital. Obviously, finance companies do not feel comfortable financing a company with limited cash flow.

Reason #2: Your assets may have liens

If your company has had problems for a while, it’s very likely that taxing authorities and the IRS have filed a federal tax lien. This lien can prevent you from getting financing because IRS tax liens restrict you from using your assets as collateral in an effective way. Since the IRS (and other authorities) can claim first position on the asset, many finance companies are unwilling to lend money against it.

The catch-22

This situation puts companies with tax problems in a bind because many need business financing to be able to survive. Without financing, they may go out of business. But they can’t get business financing because their cash flows are complicated and their assets are encumbered.

Do you have this problem?

If your company has cash flow problems caused by slow-paying commercial clients, invoice factoring may help. And in certain circumstances, invoice factoring can be used to finance companies with serious tax problems. However, this solution helps you only if you have a viable plan to turn around your business and if the IRS agrees to cooperate. This arrangement is difficult to manage, but it can be done in certain situations.

Invoice factoring solves the cash flow problem by accelerating the funds associated with slow-paying accounts receivable. Your client does not need to pay sooner. Instead, a factoring company finances your invoice — giving you immediate liquidity. When used correctly, a factoring plan allows you to offer terms to your slow-paying (but creditworthy) commercial clients, and it can help you grow your business if you were turning away clients because you could not afford to give them credit terms.

Qualification requirements

To qualify for invoice factoring under these circumstances, you need to have an approved payment plan with the taxing authorities. Furthermore, the taxing authorities need to subordinate their lien position on your accounts receivable to the factoring company. These two requirements are critical but can be arranged in certain circumstances. Additionally, your company must:

  • Sell products/services to creditworthy commercial clients 
  • Have good invoicing practices
  • Have a solid turnaround plan
  • Have experience in your industry

One last point: before entering an invoice factoring transaction, consult a CPA or other qualified financial professional. Financing for companies with tax problems is complicated, and it’s best to be well advised by professionals.

Get more information

Are you looking for factoring financing? We are a leading factoring company and can provide high advances at low rates. For information, get an online quote or call (877) 300 3258.

Note: This article is not intended to be legal, financial, or tax advice. Please consult a professional for help.