Merchant Cash Advance for Payroll Taxes

An article by Wayne Jordan    No Comments

If a small business stays in business long enough, they will eventually cross swords with the Internal Revenue Service.  The ups-and-downs of the economy and the vagaries of cash flow guarantee that eventually a payroll tax bill will come due when the business doesn’t have the money to pay the bill. 

Failure to Pay Payroll Taxes on Time

When a business fails to pay its’ payroll taxes on time, penalties and interest begin to accrue.  Failure to file a return on time can result in penalties of 5% per month to a maximum of 25%.  Other penalties can be assessed as well, such as the “willfulness” or “100% penalty”.  Penalties and interest can add up to a very serious tax problem. 

Enforced Collection

The IRS uses Enforced Collection techniques to collect past due payroll taxes.  Enforced collection can include a levy on the business’ bank accounts, receivables, and equipment.  The IRS can also close a business for non-payment of payroll taxes.  Bankruptcy will not protect the business’ principles or key managers from collection: if the business closes, the IRS will seek payment from anyone who had the authority to sign checks or distribute funds.  Employment tax investigations by the IRS are up 75% in the past two years. 

Banks Won’t Lend Money

Banks don’t lend small businesses money to pay taxes.  In fact, in this economy, banks hardly lend any money to small businesses: loan decline rates in 2010 are nearing the 90% mark.  Faced with heavy penalties and interest from the IRS for late payment of payroll taxes and no money available from the bank, what’s a small business owner to do?

Merchant Cash Advance

For business owners facing a problem paying payroll taxes, a merchant cash advance can provide a quick source of funds.  A merchant cash advance is an advance on future credit card receipts, unlike a bank loan, a merchant cash advance is easy to qualify for.  The requirements are:

• $2,500 minimum in credit card sales per month
• 4 months as the current business owner
• Be current on the property lease
• Have a FICO score of at least 500 (better credit = more funds and lower rates)

Re-paying a merchant cash advance is easy as well:

• Re-payment of the loan is done from credit card receipts; there is no fixed payment.  When sales are down, your payment is low.  When sales are up (and you can afford it) your payment goes up. 
• No fixed repayment term
• No collateral
• Approval not based on your credit score

Once a business gets on the wrong side of the IRS, it’s very difficult to recover.  The IRS is like a chronic disease: once you have the disease, you never get over it.  You just have to learn to live with it.  For businesses faced with a cash flow problem at payroll tax time, a merchant cash advance is a welcome relief.