A Brief Description of Tax Lien

As a tax professional, you need to take care of different types of things related to taxes. From using the latest accounting software like QuickBooks cloud hosting that allows remote hosting to keeping tabs on the latest changes in the tax world, a tax professional has to take care of many things. But In this blog post, we are going to talk about tax lien and understand why it is important for tax professionals to go through a detailed analysis of tax lien and how it affects the clients.
Most of the people related to accounting must be aware of the fact that tax lien poses a problem for businesses. As a tax professional, you must be used to helping your clients in making their tax loan journey seamless. In addition to this, you must be used to small business tax lien as well. If you will put the two situations of tax loan and tax lien together then you will get a situation to contend with. Assisting business finance with a tax lien can be quite difficult but it is the part of every tax professional jobs and therefore, one can’t skip it.
Tax lien hampers cash flows and completely destroys the budget. But one of the worst things about tax lien is that it acts as a red flag for funding. This is why businesses with lien are not able to entice traditional lenders. The situation becomes much more difficult if a small business with a tax lien is looking forward for funding in order to get accomplish the desired growth. A small business is always on a budget crunch and if tax lien will hamper their funding, then things will become very difficult.
But as a tax professional, you should know that tax lien doesn’t completely eliminate all the chances of funding, rather, it just narrows down the available options. There are many different ways through which a business with a tax lien can get a loan and if that business is your client then it becomes your duty to guide the business towards a seamless loan process. But before looking at the different ways, let’s understand how business lien affects the loan.

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The Effect of Business Lien on Loan Application

It doesn’t matter whether the lien is against the business owner or on the business, it will surely have a great impact on the loan. Most of the lenders first analyze the risk associated with the business to which they are lending the money. This why the more your client will be able to prove that he can pay back the loan, the more will be his chances of getting a good loan.
You should first inform your client that tax lien might not be affecting the credit score but they surely give a clear signal to the lender that the business is not able to pay back its obligations. There are many lenders who analyze both the personal and business finance and therefore, a personal lien on your client will still have an effect on the loan application for the business. So, a lien doesn’t act as a complete blockage for loans but it just acts as a filter that narrows down the available options.

Take Care of the Lien

If you don’t want lien to hamper your loan application then the most obvious thing that you can do is to take care of your lien. But taking care of the lien doesn’t mean that paying it off before applying for a loan since if you could pay it off then you would have done it way before applying for a loan. Taking care of your lien means settling down to an agreement for lien with your client. Here, the settlement means either paying the lien in small installments or getting some relief. You can also get your client’s tax below $10,000 and ask to remove the lien.
Any of the above mentioned methods of settlements will send a positive signal to the lender and he will realize that the company is taking its obligations seriously. So, by understanding that the management of the business is ready to pay what it owes, the number of lenders will increase for the client.
But if your client is not able to take care of the lien by any of the above mentioned ways then the only option you will be left with is to pay your lien before financing. There are many lenders who fist want the business to settle their previous obligations. If a business that is already not able to get rid of the burden of past obligation will find it very difficult to deal with new obligations. So, if your client can settle your lien before financing then it will be the best thing that he can do.

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Other Funding Options

Very few lenders have the stomach for dealing with businesses with a lien. But this doesn’t mean that all the doors of financing will be closed for your client. You can simply suggest your client to go for alternative lending as these lenders have more appetite for risk. There are many small business owners that deal with alternative lenders who are digital first. These alternative lenders help small businesses to access a wide array of loan products. If your client works with an alternate lender then the chances of getting a loan will be better in comparison to traditional banks.
You should know that alternate lenders approve around 61% of the applications while the traditional banks approved only 48% of the applications. So, you can suggest your client to work with an alternate lender who has a higher appetite for risk as in these cases, the chances of getting the funding will surely be higher.
Having a lien doesn’t mean the end of financing. There are still different options for businesses and business owners with lien to get their loan applications accepted. You can choose the right way to get a loan if you are dealing with a lien on the basis of your requirement.

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