SBA rules · SOP 50 10 8.1

Can an SBA loan be used to pay taxes?

SBA loan proceeds cannot be used to pay past-due trust fund taxes, but may pay delinquent business income taxes if the applicant has an approved, current IRS payment plan, and current operational taxes may be paid through eligible 7(a) working capital.

Quoted from SBA SOP 50 10 8.1Every quote checked word for word

In detail

Delinquent trust fund taxes: Loan proceeds must never be used to pay past-due Federal, state, or local payroll taxes, sales taxes, or similar taxes required to be collected by the applicant and held in trust on behalf of a government entity.
Delinquent business income taxes: Payment for delinquent business income taxes is permitted only if the applicant has an approved payment arrangement with the IRS and is current on the payments under that arrangement.
Current operational business taxes: For 7(a) loans, proceeds may be used for working capital to finance everyday operations and short-term operational needs, while the borrower must certify prior to disbursement that it is current on all taxes and will pay all taxes as they come due.
Lines of credit and CAPLines: Under Working Capital CAPLines and MARC loans, proceeds cannot be used to pay delinquent withholding taxes or trust funds, and Contract CAPLine proceeds may not be used to pay delinquent taxes or trust funds directly or indirectly.
504 loans: The CDC must verify that the applicant is current on all Federal, State, and local taxes, and 504 proceeds are restricted to eligible fixed assets and eligible administrative or refinancing costs.

The source

What the SOP says

“Loan proceeds must not be used to pay past-due Federal, state, or local payroll taxes, sales taxes, or similar taxes that are required to be collected by the Applicant and held in trust on behalf of a Federal, state, or local government entity (13 CFR § 120.130(e)).

SOP 50 10 8.1, Chapter 3: Uses of Proceeds > 13 CFR § 120.130 (lines 803-817)✓ Verified

“Payment only for delinquent business income taxes may be permitted if the Applicant has an approved payment arrangement with the IRS and the Applicant is current on the payments in the arrangement.

SOP 50 10 8.1, Chapter 3: Uses of Proceeds > 13 CFR § 120.130 (lines 803-817)✓ Verified

“Working capital to finance everyday operations and short-term operational needs.

SOP 50 10 8.1, Chapter 3: Uses of Proceeds > For 7(a) only, Borrower may also use loan proceeds for: (lines 783-791)✓ Verified

“Borrower and OC are current on all federal, state, and local taxes, including but not limited to income taxes, payroll taxes, real estate taxes and sales taxes; and

SOP 50 10 8.1, Chapter 6: SBA Terms and Conditions through Disbursement for all 7(a) Loans > Borrower Certifications: (lines 3005-3019)✓ Verified

“They will pay all Federal, state, and local taxes, including income, payroll, real estate, and sales taxes of the business when they come due;

SOP 50 10 8.1, Chapter 6: SBA Terms and Conditions through Disbursement for all 7(a) Loans > Borrower Certifications: (lines 3005-3019)✓ Verified

“To pay delinquent taxes or similar funds held in trust (directly or indirectly);

SOP 50 10 8.1, Chapter 4: 7(a) CAPLines > Contract CAPLine proceeds may not be used: (lines 2018-2029)✓ Verified

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