You owe the IRS $35,000 and cannot pay it. Business loan or payment plan?

The IRS will put you on a payment plan without much argument if the numbers fit. A short-term plan gives up to 180 days on balances under $100,000. A long-term installment agreement spreads balances under $50,000 over monthly payments, and both can be set up online without a phone call. The IRS's own page on options for a tax bill you cannot pay lays this out.

Interest continues, plus a failure-to-pay penalty, and together they run in the high single digits per year — roughly 8 to 10 percent, which is a fraction of what any short-term business funding costs. On a $35,000 bill, that is the cheapest money in this article by a wide margin.

So the honest first answer is: for an income tax balance, apply for the installment agreement before you apply for anything else.

Three cases. First, a lien is about to be filed. A federal tax lien is public, it attaches to everything the business owns, and almost every funder — bank, equipment lender, revenue-based — declines or heavily prices a business with one in place. Paying the balance to stop a lien is buying back access to every other kind of money, and that can be worth a short, expensive loan.

Second, an installment agreement has already defaulted. The IRS is less patient the second time, and a levy on your business account is a very different problem from a payment plan.

Third, the balance is payroll tax. Withheld payroll tax is treated as money you held in trust for your employees, the penalty for not remitting it is steep and personal, and the IRS pursues it harder than income tax. Clearing a payroll tax balance fast is one of the few tax situations where paying a factor rate is rational.

A business loan to pay taxes is a normal use and funders will say so. What they check is whether a lien has already been filed, because that changes the file. If it has not, say plainly what the money is for and attach the notice. If it has, read our guide on funding with a tax lien first — it is possible, but it is a different application.

Amounts run half to one and a half times a month's deposits, so a business depositing $40,000 a month can generally cover a $35,000 balance in one offer. Ask for the total repayment in dollars and compare it against the IRS's own interest and penalty on the same balance over the same months. That comparison usually decides it in the IRS's favor unless a lien or payroll tax is involved.

A tax bill you cannot pay in April is money that should have been set aside from May to March. The fix is not a better loan; it is a separate account that takes a fixed percentage of every deposit and does not get touched. A line of credit is the backstop for the year the percentage was wrong.