Can You Get a Merchant Cash Advance with a Tax Lien? (The Honest Answer)

Okay, let's cut to the chase. You're here because you probably opened a letter from the IRS recently, or maybe the state, and your stomach dropped. A tax lien.

It happens. Honestly, more often than you'd think. I talk to business owners every single day—contractors, restaurant owners, trucking companies—and tax issues are probably in the top three things that stress them out. You get busy, cash flow gets tight one quarter, you prioritize payroll over estimated taxes, and suddenly you’re behind. Then the lien hits.

Now you need capital to keep things moving or maybe to facilitate a new project, but you're worried that the lien is going to act like a giant stop sign for any funding.

If you walked into a traditional bank right now? Yeah, it’s a stop sign. A big red one. Most banks won't touch a file with an open tax lien with a ten-foot pole. It’s just their policy. Black and white.

But with a merchant cash advance (MCA) or revenue-based funding? The answer is usually yes. But—and stick with me here—there is a "but." It’s not automatic, and it depends on how you handle it.

So, is it a hard no?

Absolutely not. We fund businesses with tax liens pretty regularly here at LoanQuail.

See, unlike a bank that relies heavily on your credit score and clean assets, we look at your cash flow. We look at your revenue. If you're generating sales, you have options. However, the way we fund the deal changes depending on the status of that lien.

I had a client a few months back, a guy running an HVAC company in Georgia. He had a $14,000 federal tax lien from two years ago that he just hadn't cleaned up yet. He needed $40,000 for equipment. He came to me thinking he was dead in the water because his local credit union laughed him out of the office.

We got him funded. But we had to structure it specifically around that lien.

Why lenders freak out about the IRS

To understand how to get approved, you gotta understand why funders get nervous about liens in the first place.

It’s not necessarily about your character. We know good people get behind on taxes. The problem is that the IRS is the ultimate creditor. They are the 800-pound gorilla in the room. If the IRS decides they want their money now, they can levy your bank account. They can freeze it.

If a merchant cash advance company advances you money and expects daily or weekly payments from your business bank account, and suddenly the IRS freezes that account... the funder gets zero. That’s the risk. It’s about position. The IRS always wants to be in the first position.

So, when I see a file come across my desk with a lien, I'm not judging you. I'm just calculating the risk of the IRS stepping in and shutting down the cash flow.

Three ways we can get this done

Okay, so how do we actually move forward? Usually, it goes one of three ways. If you fall into one of these buckets, you're in decent shape.

1. You have a payment plan in place

This is the gold standard. If you have a tax lien, don't ignore it. Call the IRS (or the state comptroller) and get on an Installment Agreement. Secure that paper trail.

If you can show me documents proving that you have an agreement with the tax authorities and—this is crucial—bank statements showing you’ve made the last three payments on time, we often treat that lien as a regular expense rather than a red flag. It shows you're handling it. It removes the fear that the IRS is going to surprise attack your bank account tomorrow.

2. The lien is small relative to the funding amount

Let's say you owe the state $2,000, but you're doing $100,000 a month in revenue and you're looking for $80,000 in funding. honestly, a lien that small is barely a blip. Sometimes, depending on the underwriting team, we might even overlook a very small lien if the business is strong enough.

Don't bank on this, though. "Small" is subjective. But generally, if the lien is tiny compared to your gross revenue, it's less of a hurdle.

3. We pay it off for you (Netting the Proceeds)

This happens all the time. It's probably the most common solution for liens under $20k or so.

Here’s how it works: You apply for $30,000. You have a $5,000 tax lien. We approve you for the $30,000, but at closing, we send $5,000 directly to the taxing authority to satisfy the lien, and we deposit the remaining $25,000 into your business account.

It’s a win-win. You get the capital you need, the lien disappears (which helps your credit long-term), and our underwriters sleep better at night knowing the IRS isn't going to freeze your accounts. I actually love doing these deals because the business owner usually feels a massive weight lift off their shoulders. Two birds, one stone.

Don’t try to hide it (Seriously)

I'm gonna be real with you here. Do not try to hide the lien.

Every legitimate funder, including LoanQuail, runs a background check and a lien search. We will see it. If you tell me on the phone, "No, no tax issues, everything is clean," and then the search comes back with a $10,000 lien filed last month, it looks bad. It kills the trust.

If you tell me upfront, "Hey, just so you know, I've got a lien from 2022, but here's my plan," I can work with that. I can go to bat for you with the underwriting team. I can say, "Look, he knows about it, he's owning it, let's structure a way to pay it off."

But if you hide it, it looks like you're desperate or dishonest. And in the finance world, those are deal-killers.

What about state vs. federal liens?

Is there a difference? Sort of.

• Federal (IRS): These are the scary ones. As I mentioned, the IRS has broad powers to levy accounts. We treat these with more caution.
• State Liens: These vary wildly. Some states are incredibly aggressive (looking at you, California and New York). Other states are a bit slower to move.
• UCC Liens: Just to clarify, because people get these mixed up. A UCC lien from another lender is different from a tax lien. If you have other loans out, that's a different conversation about "positions" and "stacking." We handle that too, but it's different from owing the government.

Getting prepared before you apply

If you're reading this and thinking about applying with LoanQuail (which you should), doing a little homework first speeds things up. I can't tell you how many times a deal gets stalled for three days just because we're waiting on a PDF from the accountant.

Here is what you should grab:

First, find your lien notice. Know exactly how much it is. Don't guess.

Second, if you are on a payment plan, find the agreement letter (usually Form 9465 for the IRS) and highlight the payments on your last few bank statements.

Third, check your revenue. We typically look for businesses doing at least $15k or $20k a month in deposits. If you have a tax lien and your revenue is dropping, that's a tough sell. We need to see that despite the old debt, the business is making money right now.

The bottom line

Having a tax lien feels like a black mark, but in the world of alternative business funding, it's just another variable we solve for. It doesn't define your business.

We work with real people, and real people have baggage sometimes. Business is messy. If your cash flow is solid and you're honest about the situation, there is a very good chance we can get you the capital you need to keep growing. Whether that’s by paying off the lien for you or working around your current payment plan.

So don't let the fear of rejection stop you from seeing what's possible. If you want to see what you qualify for, you can check your eligibility with us pretty quickly. We’ll look at the whole picture, not just the mistakes.