For SBA lenders
Short answer
Significant outstanding tax liabilities must generally be paid off at closing from transaction proceeds or seller's funds. Lenders cannot use SBA loan proceeds to pay delinquent federal taxes.
SBA loan proceeds cannot be used to pay existing delinquent federal taxes. State or local tax liens must be cleared at or before closing, or adequate reserves must be established. The lender must ensure that the business will start with a clear financial slate, free of liens or substantial obligations that could impair its ability to repay the SBA loan.
During due diligence for a $700,000 business acquisition, a lender discovers the target business owes $40,000 in outstanding payroll taxes. The lender would require the seller to pay off these taxes from their proceeds or other funds at closing; the SBA loan funds cannot be used for this purpose.
Insider move
Lenders are concerned about assuming undisclosed or unresolved liabilities, particularly tax liens, which could jeopardize the collateral position or the business's cash flow. Ensuring a clean title to assets and resolving all pre-existing liabilities is critical for a successful closing and guaranty.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
SOP 50 10 - Lender and Development Company Loan Programs
Last checked 2026-06-13. Official sources control — verify before relying on any rule for a live deal.
Last reviewed 2026-06-13 · SBA sources checked through 2026-06-13. DealRoom analysis of public SBA 7(a) lending records (FY2020–present). Grounded in the current SBA rulebook; verify against the official sources above before relying on it for a live deal. Not legal, tax, or financial advice, and not an approval decision.
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