How a tax extension can delay a business loan application
Filing for a tax extension is sometimes unavoidable
About 19 million individuals and businesses filed for an extension on their tax returns last year, many due to unexpected circumstances such as IRS backlog delays. No matter the reason, filing for an extension only gives you more time to file, not to pay, which can put you at risk of overpayment, or hefty late payment fees if you underpay based on your estimation.
In addition to these risks, filing for a tax extension can also affect a business’s ability to get financing. If you’re planning to apply for a business loan this year, understand the impact an extension could have so you can keep your finances on track.
HOW TAX RETURNS FACTOR INTO BUSINESS LOAN APPLICATIONS
While every institution is different, most traditional lenders and banks look at profit and debt service coverage ratio, or DSCR, as key factors in determining a business’s ability to repay a loan. Profit is revenue minus expenses, while DSCR speaks to a business’s ability to take on new debt while covering current debt obligations.
