The costs of ignoring the IRS

With April upon us, many small business owners are thinking about their taxes. While it is tempting to push through tax season and get back to focusing on one’s primary business, it is prudent to consider how the IRS and local taxing authorities can drastically impact your business’ ability to function and borrow the capital needed for growth.

It is often too late when small business owners learn the reality of their working relationship with the IRS. As you go about the year focused on innovation, capital budgeting, and growing your business, it can be very easy to overlook the timely and adequate payments of federal income tax. This oversight can lead to sometimes devastating surprises come April 15, when your business suddenly finds itself owing money to the IRS. While many business owners believe they’ll be able to pay these balances off over time, federal tax obligations tend to balloon with interest and penalties as high as 25%. Further, the IRS can place a tax lien on all aspects of your business: buildings, equipment, inventory, accounts receivable, bank accounts, copyrights, trademarks, and etc. They are essentially the only creditor who can padlock the doors to your business.

Adding insult to injury, these tax liens can make operating your business very difficult. Selling an asset with a tax lien introduces uncertainty most buyers don’t want to navigate. Customers, aware of the presence of tax liens, will often begin exploring alternative supply channels for fear of your business’ future prospects. Banks and lending institutions will often consider a tax lien a default of any existing credit arrangements and obtaining additional credit can become next to impossible.

The loss of access to credit can be especially burdensome as that credit is often the only means to payoff the existing tax debt. Small business owners with otherwise successful operations will find themselves trapped by an unexpected tax bill from the IRS. When they turn to their local bank for help, that tax bill becomes an impediment to obtaining financing. With underwriting standards and regulations that emphasize quantitative metrics and standardized checklists, tax liens force banks to reject otherwise strong credit applications. The very reason for seeking credit becomes the very obstacle to obtaining it!

Resolving tax debts with alternative financing

When faced with the need to quickly resolve a tax bill, alternative financing providers, such as private lenders can fill the void left by the traditional banking sector. A private lender, unburdened by the need to comply with federal lending standards or bureaucratic credit committees, can assess your business for its merits, and quickly provide the capital needed to settle any tax obligations to the IRS. When compared to the interest and penalties charged of delinquent taxes, let alone the disruption to other aspects of your business, alternative financing can be a cost-effective means of resolving a federal tax obligation.

Worth Avenue Capital, LLC has been in the private lending business since 2008. The company has helped many clients pay federal and municipal tax obligations, freeing them to return to the day-to-day operating of their businesses. As banks shy away from working with borrowers facing a tax delinquency, Worth Avenue Capital, LLC’s high-touch private lending approach can not only finance your business, but also help you focus on what your business does best. If your business is facing a tax lien or unpaid tax bill and you would like more information on Worth Avenue Capital, LLC’s financing capabilities, please contact us at worthavenuecapital@gmail.com or 203-605-4082.