Business Funding with a Tax Lien: What Still Works

A tax lien doesn't close every door. We've helped Texas business owners get funded with open IRS liens, and we've also seen deals fall apart because the applicant didn't disclose the lien until an underwriter found it. Those are two very different outcomes. The difference almost always comes down to how the lien was handled from the first conversation.

Before getting into what still works, let's separate the types. They're not all the same.

Three Types of Tax Liens, Three Different Impacts

Federal IRS Tax Lien

This is the most serious. When the IRS files a Notice of Federal Tax Lien, it becomes a public record that shows up in lender searches. It attaches to all your property and rights to property, including after-acquired property (things you buy after the lien is filed). This is the lien that most commercial lenders will flag. Most SBA lenders will stop the application entirely when they see an open federal lien.

Texas State Tax Lien (Comptroller)

The Texas Comptroller can file a state tax lien for unpaid franchise tax, sales tax, or other state obligations. These also appear on public record searches. ISO lenders and MCA companies will see them, though some treat state liens with slightly more flexibility than federal ones, particularly if an installment agreement is in place.

County Property Tax Lien

Property tax liens attach to specific real estate, not to your business operations generally. If you own property with a county tax lien, it affects that asset. For most business funding products, this is a lesser concern unless you're pledging that property as collateral. An HVAC company with a county tax lien on the owner's personal property can still get a working capital advance without that lien being a deciding factor.

Which Products Still Work with an Open Lien

MCA lenders are the most tolerant of tax liens. They're advancing against your future revenue, not taking a first-lien position on your assets. The IRS lien is already there. An MCA lender isn't competing with it for collateral the same way a secured term lender would be. Revenue-based products live in a different part of the capital structure.

Equipment financing gets more complicated with a federal lien because IRS liens attach to after-acquired property. That means equipment purchased after the lien was filed is technically subject to the IRS's claim. Some lenders will structure around this by getting IRS subordination (a formal request asking the IRS to step behind the new lender on that specific piece of equipment). It's not fast, but it works in some cases.

SBA loans are essentially off the table with an open federal tax lien. SBA lenders are required to check and will decline. There's no workaround here. The SBA's own standard operating procedure requires resolution of open federal tax liens before loan approval.

How to Disclose a Lien Properly

This is the single most important thing in this article. Disclose the lien upfront. Do not wait for the lender to find it.

When a lender runs a background search and finds a lien you didn't mention, the deal usually dies. Not because of the lien, but because you didn't disclose it. That signals to the lender that you might be hiding other problems too. Trust is part of the underwriting process. You kill it by omission.

When you disclose proactively, you control the framing. A clean disclosure sounds like this:

That's a manageable situation. You've shown that you're dealing with it responsibly. The lender knows exactly what they're looking at. Most will continue underwriting on that basis.

Contrast that with a lender discovering a $38,000 federal lien in their public records search after you filled out an application that asked about outstanding tax obligations and you left it blank. That application ends there.

A Real Example: Houston HVAC Contractor

A Houston HVAC contractor came to us in early 2025 with an IRS lien from 2023 for about $45,000. He had entered an installment agreement in mid-2023 and had made every payment. Revenue was running $62,000 per month over the prior 3 months. He needed $35,000 for a crew expansion going into the spring cooling season.

We disclosed the lien in the initial submission package with a copy of the installment agreement and a 6-month payment history. Three lenders out of our network declined. Two came back with offers. He took a $35,000 advance at a 1.32 factor rate with a 9-month term. The daily payment was manageable alongside his installment agreement payments. He repaid it in 7 months.

The key variables that made it work: strong revenue relative to the lien amount, a documented payment history on the installment agreement, and a full upfront disclosure that let lenders underwrite the actual situation rather than react to a surprise.

Using Funding to Resolve the Lien

Some lenders will consider a deal specifically to pay off an IRS lien. If the advance proceeds are going directly to the IRS and that payment will release the lien, a lender may be willing to approve. Once the lien is released, their position on your other assets is no longer subordinated to the IRS.

This requires more coordination. You'd need a payoff figure from the IRS, a clear funding timeline, and a lender willing to structure around it. It's not common, but it's done. The math has to work: the lender needs to know the lien will actually be released, not just reduced. A partial paydown that doesn't release the lien doesn't change the lender's position.

If your lien balance is at a number where a single advance could pay it off entirely, this is worth exploring. A paid-and-released federal tax lien opens up a significantly wider set of funding products in the months that follow.