Payroll Tax Deposit Data — The Key Piece of the Underwriting Puzzle Published June 17, 2022
Watch the video to learn more about how Tax Guard can help you fund with confidence.
The underwriting process is kind of like assembling a 1,000-piece puzzle. Do you know which single piece of data acts as an essential corner piece, giving you immediate insight into a business’ overall financial health? Here’s a hint: what’s the first payment that a business experiencing the beginnings of financial distress will stop paying?
If you answered IRS payroll tax deposits, pat yourself on the back! And if you’re scratching your head wondering why missing a payroll tax deposit is such a big deal, you’ve come to the right place. Here’s the thing—the IRS is notoriously slow to pursue people who owe them money. When cash flow begins to slow to a trickle, businesses still have vendors, rent, and employees that need to be paid right away. Businesses figure that they can catch up on payroll tax deposits when conditions improve. But when the IRS gets the short end of the stick, penalties begin to accrue, and catching up with payments proves all the more difficult. If a deposit is fifteen days overdue, 10% of the deposit is owed as a penalty. Small businesses often operate on thin margins, so a missing payroll deposit can be a telltale sign that a spiral into financial instability is on the horizon.
Determining risk shouldn’t rely on a lender’s assumptions alone—that’s why data from a public records search doesn’t cut it. Liens are only officially filed by the IRS 80% of the time. Access to real-time data gives underwriters the clarity they need to make not just quick decisions, but smart ones. We’ve found that integrating comprehensive federal tax data into the underwriting process may reduce loan default rates by upwards of 50%, while increasing the overall volume of approved loans by more than 20%.
Exclusive tax data can reveal deeper insights into the payment habits of small businesses that waver between approval or denial, giving you a clue as to how they might handle a loan. A history of verified tax payments over a long period of time is a much stronger indicator of holistic financial health than personal credit data, which underwriters are often forced to examine when faced with small businesses with thin credit profiles.
Our decade-long history of working with small business lenders has resulted in a rich database that contains over 70 million records. While payroll tax deposits are made 8-13 times per quarter, research into that data has revealed that most compliant businesses choose to pay payroll taxes bi-weekly.
The IRS has all the information you need to make informed decisions, they just lack the infrastructure to keep track of it themselves. With Tax Guard, you can now monitor payroll tax deposits in real-time. Even if a small business misses a payment, you won’t. Similar to finding the corner piece of the puzzle, Tax Guard reports may be the missing piece you need to connect directly to the IRS’ most crucial data points so that you can lend with confidence.