What is a tax lien & how will it impact your business and personal credit?

lien-on-property-

Tax Liens Impact Business & Consumer Credit Scores

The IRS can be hasty in their attempt to collect unpaid debts from business owners and consumers without giving them much of a chance to fulfill the debt. We have spoken to many business owners who have been reprimanded by the IRS before the tax bill due date had even passed. IRS repercussions for an unpaid bill are serious and will cause damage to your financial stability and business credit reports.

Tax liens on business credit profiles

The North Shore Advisory team of business credit experts have noticed a significant increase in the number of liens being filed against new and existing business clients of ours. A tax lien is defined as a state or federal claim against a company’s assets or property due to their failure to satisfy a tax bill on time.

When the IRS issues a “demand for payment” letter they give you 10 days to pay the bill, if it is not paid on time a lien is generated. After the lien is created the IRS notifies the other creditors that they have a claim on all or some of your assets. Since a tax lien is public record it will impact all three business credit reports.

You will end up with a damaging blemish on your business credit reports that can hurt scores significantly and greatly impact your ability to secure a line of credit, business loan, increase insurance premiums, or even maintain relationships with your current suppliers and partners. It is possible to help your profiles through paying off the lien, however we have noticed that after liens are paid businesses end up with two listings on their reports one for the date filed and the second for the date released, depending on the bureau. Even after the debt is resolved it is possible for the lien to remain on reports for many years to come.

A change in consumer credit reporting

If you’re an individual suffering from the credit consequences of a tax lien, you’re likely jumping for joy, as of July 1, 2017 changes will be made to the data on all three credit reports. The majority of civil judgments and half of all tax liens will be removed from your reports. It’s estimated that around 7% of consumer credit reports will see a change in their scores due to this adjustment (whether it be positive or negative).

Business owners who choose to utilize their personal credit, will also be happy to hear that their scores ma increase. There is no word on the business credit bureaus following suit although it sounds unlikely since company credit reporting is a whole different breed from consumer credit. Owners should expect to still see their tax liens reporting on business credit and affecting scores/indexes.

You still need to pay

Tax liens may soon be off of consumer credit reports, but that does not mean they don’t exist. The unfortunate part of this deal is that many individuals learn of their outstanding tax liens because of their public records appearing on credit reports. Individuals will not be able to depend on an alert via their credit, and if a lien goes unpaid it can accumulate copious amounts of interest and fees over the span of a decade or more.

We understand the impact that tax liens and delinquencies have on business credit reports and with our three decades of experience, our business credit specialists have developed an approach to effectively remove tricky tax liens from business credit reports. This puts our clients in a better position to secure loans, lines, leases, and new/existing partnerships. If your business is suffering from the weight of a tax lien on your business and/or personal credit reports reach out to one of our credit specialist for a free analysis.

Leave a Reply