As tax season winds down, many small business owners are looking for funds to pay off the IRS. Since a small-balance borrower with tax debt won’t be able to get a bank loan, commercial mortgage brokers need to consider non-conforming lenders when working with these types of clients. If you’re working with a small business owner looking to pay off their tax debt, there are some things you need to know to get started.
The amount owed:
As with any commercial mortgage loan, your lender will need to know how much your borrower is requesting for their IRS payoff. You need to discuss the amount to be requested with your borrower prior to submitting the scenario and include the amount in your loan submission summary. Be sure to submit any relevant financial information regarding the amount as well.
Which taxes are owed:
Before submitting the scenario to a lender, you need to speak with your borrower about what type of taxes they owe. Whether they’re behind on income taxes, real estate taxes, sales taxes, payroll taxes or a combination of the four, your lender will need to know so that they can decide whether or not to finance your borrower’s request. Each category of delinquent taxes comes with its own set of penalties and interests, and a lender will need this information too. Additionally, the particular type of IRS debt, such as 940/941 taxes, will also be important. Some lenders may not consider a borrower with this type of debt or will offer a higher interest rate based on the specific debt owed, since the type of outstanding tax debt indicates different levels of risk for a lender.
The reason your borrower hasn’t paid:
Non-conforming lenders are generally story lenders, meaning they need to understand your borrower’s unique situation when evaluating a commercial mortgage request. It’s very important to discuss with your borrower why they are behind on their taxes, and to include that information in the loan submission summary.
How recent the debt is:
Is your borrower dealing with a year or two of delinquent taxes, or have they fallen much further behind? Discuss this with them, as it’s information any commercial mortgage lender will need to know when making their decision.
While it can be a challenge, there are non-conforming lenders willing to provide small-balance commercial mortgages for paying off tax debt. The above questions are a great starting point when working with a client looking to clean up their delinquent taxes. Once you have the answers to the above questions, you’ll be able to discuss your borrower’s situation with a lender and begin working toward finding a solution and closing the loan.