SBA rules · SOP 50 10 8.1
Can an SBA loan be used to pay taxes?
SBA loan proceeds cannot be used to pay past-due trust fund taxes, but may pay delinquent business income taxes if the applicant has an approved, current IRS payment plan, and current operational taxes may be paid through eligible 7(a) working capital.
In detail
- Delinquent trust fund taxes: Loan proceeds must never be used to pay past-due Federal, state, or local payroll taxes, sales taxes, or similar taxes required to be collected by the applicant and held in trust on behalf of a government entity.
- Delinquent business income taxes: Payment for delinquent business income taxes is permitted only if the applicant has an approved payment arrangement with the IRS and is current on the payments under that arrangement.
- Current operational business taxes: For 7(a) loans, proceeds may be used for working capital to finance everyday operations and short-term operational needs, while the borrower must certify prior to disbursement that it is current on all taxes and will pay all taxes as they come due.
- Lines of credit and CAPLines: Under Working Capital CAPLines and MARC loans, proceeds cannot be used to pay delinquent withholding taxes or trust funds, and Contract CAPLine proceeds may not be used to pay delinquent taxes or trust funds directly or indirectly.
- 504 loans: The CDC must verify that the applicant is current on all Federal, State, and local taxes, and 504 proceeds are restricted to eligible fixed assets and eligible administrative or refinancing costs.
How sbaloansHQ handles this
How does sbaloansHQ handle back taxes?
Tell us about any tax balance up front. Owed business income tax can be paid from the loan once you are on an IRS payment plan and current on it, so set that up before you apply. Unpaid payroll or sales tax cannot be paid from the loan at all and needs another source.
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The source
What the SOP says
“Loan proceeds must not be used to pay past-due Federal, state, or local payroll taxes, sales taxes, or similar taxes that are required to be collected by the Applicant and held in trust on behalf of a Federal, state, or local government entity (13 CFR § 120.130(e)).
“Payment only for delinquent business income taxes may be permitted if the Applicant has an approved payment arrangement with the IRS and the Applicant is current on the payments in the arrangement.
“Working capital to finance everyday operations and short-term operational needs.
“Borrower and OC are current on all federal, state, and local taxes, including but not limited to income taxes, payroll taxes, real estate taxes and sales taxes; and
“They will pay all Federal, state, and local taxes, including income, payroll, real estate, and sales taxes of the business when they come due;
“To pay delinquent taxes or similar funds held in trust (directly or indirectly);
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This page quotes the SBA's Standard Operating Procedure 50 10 8.1. Lenders can ask for more than the SBA minimum. It is general information, not a loan approval or legal advice.