A tax lien makes funding harder, but it is not always a dead end. Some funders will work with an active lien if your revenue is strong and you have a plan to address it.
How funders view a tax lien
A lien signals unpaid taxes and gives the government a claim on your assets, which makes funders cautious because it can sit ahead of their repayment. Traditional banks usually decline outright, while alternative and revenue-based funders may still consider you.
What they want to see is that the business is healthy now and that the lien is being managed rather than ignored.
What improves your odds
Funders look more favorably on an applicant who:
- Has an active IRS or state payment plan in place
- Shows strong, consistent monthly revenue
- Can document the lien amount and its status
- Has avoided new negative marks since the lien
Options that may still be available
Revenue-based financing and merchant cash advances are the most likely to work with a lien on file, because they underwrite off deposits. Some funders will even structure funding to help clear the lien. Equipment financing and factoring can also be possible depending on the situation.
Terms will reflect the added risk, so comparing offers is especially important here.
What is IRS lien subordination, and can it help you get funded?
Subordination does not remove a federal tax lien. It allows another creditor to move ahead of the IRS in priority, and the IRS says plainly that doing so "may make it easier to get a loan or mortgage." You apply using the instructions in IRS Publication 784, through your local Collection Advisory Group.
This matters more than most owners realize. A funder's hesitation is rarely about the tax debt itself — it is about standing second in line behind the federal government if things go wrong. Subordination addresses that directly, which is why it is the single most useful tool on this list for someone who needs capital while a lien is still on file.
The application is not automatic and it is not instant, so start it before you need the money rather than after a funder has already declined you. Because eligibility depends on the specifics of your debt and your assets, ask a tax professional to handle the filing.
Can you get the lien notice withdrawn before you apply?
Sometimes. Under the IRS Fresh Start rules, the IRS may withdraw the public Notice of Federal Tax Lien if you enter or convert to a Direct Debit Installment Agreement, owe $25,000 or less, will fully pay within 60 months, have made three consecutive direct debit payments, and are current on your other filings and deposits.
A withdrawal removes the public notice that creditors and underwriters can see, though you still owe the balance. If you owe more than $25,000, the IRS allows you to pay the balance down to $25,000 first and then request the withdrawal. The request is made on Form 12277.
Practically, this is the option worth checking first if your lien is modest. Removing the public notice changes what a funder finds when they search, which can move a file from an automatic decline into a normal underwriting decision.
Why a tax lien can stop invoice factoring and receivables funding
Because the lien attaches to your receivables. The IRS states that a federal tax lien attaches to all business property and to all rights to business property, including accounts receivable. A factor buying your invoices would therefore sit behind the government on the very asset it is purchasing.
This is why factoring and asset-based applications are often declined outright when a lien shows up, even though the business itself looks healthy. It also explains a pattern owners find confusing: a merchant cash advance or revenue-based offer may still come through while a factoring application dies, because those products underwrite off deposit history rather than taking a first position on a specific asset.
If invoice factoring is the product you actually need, subordination or a discharge on the specific receivables is usually the path back to a yes. A discharge removes the lien from identified property, and is covered in IRS Publication 783. If it is not, comparing the full range of small business funding options is usually a faster route than fighting the lien first.
Get the lien on record and shop widely
Being upfront about the lien and showing a payment arrangement reassures underwriters far more than hoping it goes unnoticed. Gather your documentation before you apply.
The Broker Shop knows which funders will consider an applicant with a lien on file, and lets them compete for your file rather than sending you to one desk for one answer. Checking your options is free and won't affect your credit score. For the tax side of resolving a lien — subordination, withdrawal, or a discharge — ask a tax professional.
Source: IRS — Understanding a Federal Tax Lien (lien release timing, withdrawal eligibility, subordination and discharge, and the attachment of a lien to business receivables).
See what you qualify for
One 2-minute application is matched to the funders whose guidelines you meet. It's free, and checking your options won't affect your credit score.
See What I Qualify For →The bottom line: A tax lien narrows your options, but a payment plan, strong revenue, and — where it fits — an IRS subordination or withdrawal can still get you funded. Document the lien, address it, and let the right funders compete for the file.