Can I Use My SBA Loan to Pay Taxes?

Running your own business really isn’t an easy task. Suddenly, you are the boss, and it is your responsibility to ensure that everything is running smoothly and above board.

When you are new to running your business, it can be easy to make mistakes. Falling behind on paying your taxes is one of those mistakes that is very easy to make. 

One option that small business owners can always rely on is the SBA. This government agency was created to help small businesses and the self-employed.

So, if you are struggling, the SBA will usually offer you a loan. But what happens if the issue that you are struggling with is paying your taxes?

You might have heard about people using their loans to pay their taxes. In this guide we’re going to take a look at whether you are allowed to do this, and why you might want to.

What is an SBA Loan?

Before we go any further, let’s take a quick look at what an SBA loan is.

An SBA loan is a loan that is guaranteed by the Small Business Administration, an organization that was set up in the 1950s by the US government to support small businesses. 

As well as counselling and advice, the SBA also offers a variety of different loans to help small businesses of all types. Even though they offer at least 9 different types of loans, their most popular is definitely the SBA 7(a) loan.

The main reason behind this being the most popular option is the fact that the SBA 7(a) loan is the most versatile of the loans that they offer.

A lot of the other loans offered by the SBA are targeted to specific businesses or specific business needs, but the SBA 7(a) loan covers a wide variety of different things.

From real estate to equipment to covering financial costs, there are lots of things you can use your SBA 7(a) loan for.

Even though these loans are offered by the SBA, they are not actually distributed by the SBA.

Instead, they are offered by the majority of lenders, and guaranteed by the SBA. This means that lenders have less financial risk involved in these types of loans as the government is guaranteeing a percentage of the money.

So, while the criteria you have to fit to get an SBA loan is rather tight, if you do fit it, you are almost guaranteed to be accepted for the loan.

As we mentioned earlier, the SBA 7(a) loan is undoubtedly the most versatile of the loans offered by the SBA.

So, if you are struggling to find the money to pay your taxes when Spring comes around, you might be considering applying for an SBA loan to cover this. But is this something that you can do? Let’s have a look.

Can I use my SBA loan to pay Taxes?

For lots of small businesses, tax season can be a very daunting time. As soon as Spring arrives, so does the doom of the money that you are going to have to spend out to cover your taxes.

But, paying taxes is unavoidable, unless you want to end up in serious financial and legal trouble, so you just need to grit your teeth and pay them.

But, as any small business owner will know, having to pay big financial obligations, like taxes, can be very daunting. With most businesses, there are periods where you make lots of money, and periods where you don’t.

So, it can be difficult to get the cash flow you need to cover your taxes. But can you use a business loan to do this?

Yes, you can. In fact, the IRS actually recommends that those who haven’t got the cash flow to cover their taxes use a business loan instead.

They recommend this because the financial burden that you take on from a business loan is much smaller than the consequences of not paying your taxes.

Using a business loan to pay your taxes also ensures that you do not need to take cashflow from other aspects of your business (rent, inventory, etc.) to cover the cost of your taxes.

So, it is possible to use a business loan to cover your taxes. But, does the SBA allow you to use their loans to do this? The answer to this question is neither here nor there.

According to SBA guidelines, there is nothing that says that you can use your SBA loan to cover your company’s taxes. But there is also nothing there to say that you cannot.

Generally speaking, your ability to use your SBA loan to pay taxes will depend on your own situation.

If your SBA loan was granted in order to pay for real estate, then you probably won’t be able to use it to pay your taxes. But, if you were granted an SBA loan to help the financial aspects of your business, then you might be able to. 

As we have said, the rules surrounding using SBA loans to pay taxes are very blurry.

But, legally speaking, it is perfectly okay to take out a business loan to cover your taxes. All the IRS cares about is that you pay your taxes on time, and if taking out a loan is the only way that you can do this, then that is alright.

However, if you are unsure about whether you can use your SBA loan to do this, it is best to speak to your lender.

Reasons to Use a Business Loan to Pay Taxes

We’ve already said that the IRS recommends taking out a business loan to cover your taxes if you cannot afford to pay them. But, despite this, we know that the thought of taking out a loan can be very daunting.

If you are already struggling to keep up with your taxes, the idea of taking out a loan might be off-putting as you are already in a bad financial situation.

However, as the IRS states, the consequences of not paying your taxes are far worse than the interest rates of a business loan.

Even with this knowledge, you might still need some convincing that a business loan is a good idea. But, you should be aware that taking out a business loan to pay taxes is something that a lot of businesses do.

There are lots of reasons why small business owners choose to do this, so let’s take a look at the 3 top reasons you should consider a business loan to cover your taxes.

1. It allows you to avoid IRS imposed penalties

We covered this briefly when we said that the interest rates of a loan are far better than the consequences of missing your tax deadline. But, let’s take a further look at the reasoning behind this.

If you do not pay your taxes, then the IRS will impose strict sanctions on you. Ironically, these sanctions are usually financial, so for every month that you do not pay your taxes, the amount that you owe will increase by 0.5%.

This might not seem that bad, but this is on top of the accrued interest of not paying your taxes, so the financial burden can quickly build up.

2. Avoid IRS interest

If you find the low interest rate of business loans intimidating then you will probably find the IRS interest rate even scarier.

Not only will you be charged an extra 0.5% for each month that your taxes go unpaid, but you will also be charged accrued interest on top.

The percentage of interest that is charged for payments not being made changes every single year. In 2021, this rate stands at 3%, so the interest charged on your debt will increase day by day.

This means that it can quickly become a big number which you could struggle to pay.

3. Avoid Worse Consequences

While paying interest on a loan might be intimidating, the IRS literally has the power to shut down your business. So, it is always best to ensure you pay your taxes, even if you have to take out a loan to do this.


In short, there is nothing that says you can’t use your SBA loan to cover your taxes. But, there is also nothing that says you can.

So, if you are struggling to pay your taxes, it is always best to check with your lender to see if you can use your loan to pay them.