Dealing with a tax lien can create significant hurdles for businesses, especially when it comes to merchant processing. A tax lien, which occurs when unpaid taxes are owed to the government, can disrupt payment processing and even make it harder to access essential financial services. However, this doesn’t mean your business is out of options.
There are strategic approaches to managing both your tax lien and merchant processing needs. From seeking specialized processors who cater to higher-risk businesses to taking proactive steps toward resolving the lien, there are ways to ensure smooth payment transactions. In this guide, we’ll explore creative solutions and practical strategies to help businesses with tax liens continue to process payments without skipping a beat.
Understanding Tax Liens and Their Impact on Merchant Processing
A tax lien is a legal claim the government places on a business’s assets due to unpaid taxes. This lien can make it difficult for businesses to access financial services, including merchant processing. Merchant processing allows businesses to accept credit and debit card payments, which is essential for cash flow and customer convenience.
When a business has a tax lien, payment processors see it as a financial risk. Since the IRS has a legal claim over the business’s assets, processors worry that funds could be seized, making it harder for them to recover any potential losses. As a result, many traditional payment processors may reject businesses with tax liens or impose stricter terms, such as higher fees or reserve requirements.
However, businesses with tax liens still have options. Some high-risk merchant processors specialize in working with businesses in difficult financial situations. Additionally, fintech companies are offering new solutions to help businesses accept payments while they work on resolving their tax debt.
Summary:
Tax liens can make it difficult for businesses to secure merchant processing, but alternative solutions exist. High-risk processors and fintech companies provide options for businesses facing financial challenges.
Can You Get Merchant Processing with a Tax Lien?
Yes, businesses with a tax lien can still obtain merchant processing services, but it depends on several factors. Some payment processors specialize in working with high-risk businesses, including those with tax liens. These processors may have higher fees, stricter terms, or require additional documentation.
Factors that influence eligibility:
- Lien Amount: Larger tax liens may make it harder to get approval.
- Payment History: Businesses that have set up a payment plan with the IRS have a better chance of approval.
- Revenue Stability: A steady income stream improves the likelihood of securing merchant processing.
- Processing History: Businesses with a clean transaction record have a higher chance of approval.
- Industry Type: Some industries, such as retail and food services, may find it easier to obtain approval than higher-risk industries like gambling or adult entertainment.
Featured Snippet Answer:
Businesses with tax liens can still obtain merchant processing, but approval depends on lien amount, payment history, revenue stability, and industry type. High-risk processors and fintech solutions offer alternative options.
Factors Affecting Eligibility for Merchant Processing with a Tax Lien
1. Lien Amount and Severity
Larger tax liens signal greater financial risk, making it harder to get approval. Small liens or liens that are actively being paid off are viewed more favorably by processors.
2. IRS Payment Plan
If a business has a payment plan with the IRS and is making consistent payments, some processors may be willing to work with them.
3. Business Revenue and Stability
A steady and predictable cash flow reassures payment processors that the business can manage transactions responsibly.
4. Processing History
A business with a history of responsible payment processing, low chargebacks, and steady transactions is more likely to be approved.
5. Industry Type
Some industries are considered higher risk than others. Businesses in essential sectors, such as retail or healthcare, may find it easier to secure processing than businesses in riskier industries.
Alternative Solutions for Merchant Processing with a Tax Lien
Even if traditional merchant processors deny approval, businesses with tax liens can explore alternative solutions.
High-Risk Merchant Accounts
High-risk merchant account providers specialize in working with businesses that have financial challenges, including tax liens. While these accounts come with higher fees and stricter terms, they provide a way for businesses to continue processing payments.
Third-Party Payment Processors
Platforms like PayPal, Square, and Stripe may be more lenient than traditional merchant processors. However, these services have their own rules and may freeze funds if they detect financial risks.
Fintech Solutions for Businesses with Tax Liens
New fintech solutions are emerging to help businesses with tax liens secure payment processing. Some of these services use alternative risk assessments, taking into account factors like business performance and customer transactions instead of just credit history.
Steps to Secure Merchant Processing with a Tax Lien
1. Assess Your Financial Situation
Determine the total tax debt and understand how it affects your business’s finances.
2. Contact the IRS
Set up a payment plan or negotiate a lien withdrawal or subordination to improve your chances of approval.
3. Research High-Risk Merchant Processors
Look for providers that specialize in working with businesses in financial distress.
4. Prepare Documentation
Have financial statements, tax records, and business revenue reports ready for the application process.
5. Compare Processing Fees and Terms
High-risk merchant processors may charge higher fees, so compare options before making a decision.
6. Consider Alternative Payment Solutions
If traditional processing isn’t an option, explore third-party payment processors or fintech solutions.
7. Maintain Strong Business Performance
Demonstrating financial stability and responsible processing behavior will increase your chances of approval.
Resolving Tax Liens to Improve Merchant Processing Options
Resolving a tax lien can open up better merchant processing options.
1. Set Up a Payment Plan
The IRS offers installment agreements that allow businesses to pay off tax debt over time.
2. Request a Lien Withdrawal
In some cases, businesses may qualify for lien withdrawal if they meet certain payment conditions.
3. Explore Lien Subordination
Lien subordination allows businesses to prioritize other creditors over the IRS, which can help secure merchant processing.
4. Pay Off the Lien
If possible, paying off the tax debt entirely removes the lien and improves financial standing.
Choosing the Right Merchant Processing Provider for Businesses with Tax Liens
When selecting a merchant processor, businesses with tax liens should consider:
| Factor | Importance |
| Fees | High-risk accounts often come with higher processing fees. Compare options to find reasonable rates. |
| Contract Terms | Avoid long-term contracts with high penalties for cancellation. |
| Customer Support | Work with providers that offer reliable support and understand high-risk businesses. |
| Payment Holds and Reserves | Some processors require a reserve fund to cover potential losses. Understand the terms before signing up. |
Conclusion
A tax lien doesn’t necessarily prevent a business from obtaining merchant processing services. While traditional payment processors might impose limitations due to the perceived risk, businesses can turn to high-risk merchant accounts, third-party payment processors, or fintech solutions for alternative options.
It’s important for businesses to evaluate their financial standing and explore the various processing solutions available to them. Moreover, addressing and resolving the tax lien can improve the likelihood of approval, allowing businesses to maintain smooth payment operations and continue to grow despite financial challenges.
FAQ's
A tax lien remains on your credit report for up to seven years, but businesses actively paying off their lien may qualify for merchant processing sooner.
Yes, some high-risk processors may be willing to negotiate fees or terms based on your business’s financial stability.
Yes, businesses in stable industries such as retail, restaurants, and healthcare have a higher chance of approval compared to high-risk industries like adult entertainment or gambling.
Most processors require financial statements, tax records, business revenue reports, and proof of an IRS payment plan if applicable.
A tax lien lowers your business credit score, making it harder to qualify for low processing rates. High-risk processors often charge higher fees to offset the risk.
