Business loans to clear an ATO debt

How does a business loan clear an ATO debt?

A tax debt is just another liability, and like any liability it can be refinanced. A new loan is arranged, the funds go to the ATO to settle the balance, and the business then repays the new lender under terms it can live with. The difference to an ATO arrangement is that the pressure from the tax office ends once it is paid.

People usually come to us after a quiet quarter, a slow-paying customer, a surprise assessment or a run of missed BAS lodgements. It is far more common than owners think, and it is fixable.

Why do owners choose to pay out the ATO?

Reasons we hear again and again:

• To stop ATO interest compounding on the balance
• To remove the threat of firmer recovery action
• To resolve a director penalty notice before the deadline
• To get a clean slate so the business can borrow again
• To replace several smaller arrangements with a single repayment

The ATO charges general interest charge on overdue amounts, and from 1 July 2025 that charge is no longer tax deductible for new amounts. That makes the true cost of leaving a balance sitting there worth a conversation with your accountant.

What kinds of ATO debt can be refinanced?

Type of debt	Typical background
BAS and GST	Cash tied up in stock or slow invoices
PAYG withholding	Wages paid but tax not remitted
Superannuation guarantee	Late or missed super contributions
Income tax assessments	Profit year that caught the owner out
Amended assessments and penalties	Review or audit outcomes

Each type brings different ATO consequences, so it helps to bring any recent notices when we speak.

Who does this finance suit?

• Owners with a genuine business that hit a cash-flow wall
• Directors facing personal exposure through a director penalty notice
• Self-employed people with an income tax debt and property equity
• Operators who stepped into a payment plan but cannot sustain it
• Businesses preparing to sell, refinance or acquire and needing the ATO cleared first

If the tax debt is mostly tied to a home you own, our page on home loans when you owe the ATO covers the residential side. For private-lending structures, see refinancing ATO debt.

What do lenders look at?

Lenders assess the debt differently from a standard business loan. Common questions include:

• The size and type of the debt and how old it is
• The security on offer and the equity in it
• How the business plans to stay current with the ATO after the payout
• Whether lodgements are up to date
• Personal and business credit conduct
• The exit strategy if the loan is short-term

The ATO’s own notices matter too. A director penalty notice, for example, sets a 21 day period from the notice during which a director can take a remission option, and the ATO notes that some amounts, reported late or not at all, can only be remitted by paying the debt in full. Lenders pay attention to that timing.

How does Ownright approach ATO debt?

We start with the human side. Nobody enjoys these conversations, and Trevor Scott and the team have had them thousands of times over a 40 year career in finance. Our job is to find a workable route, not to lecture.

Often that means looking at private and non-bank options that are comfortable with tax debt, or structuring the new loan so the business has breathing room. We work Australia-wide, from our Knoxfield head office, and we can often explore options other brokers do not know exist. If the situation is urgent, tell us the deadline and we will plan around it.

Is a short-term or longer-term loan better?

It depends on how the business plans to recover. A short-term loan clears the debt fast but relies on a defined exit, such as a sale, a refinance or an incoming payment. A longer-term loan spreads repayments but may involve a stricter assessment. The guide on short-term vs long-term business loans helps frame the choice.

An illustrative example

A tradie-run company falls behind on GST and PAYG after a client goes under. The ATO issues a director penalty notice. The directors own a house with equity. A lender comfortable with tax debt could provide a secured loan that pays the ATO out, leaving one repayment to a new lender and no further ATO action. This is illustrative only, and whether it is possible depends on the facts.

Mistakes that make ATO debt worse

• Ignoring notices in the hope they go away
• Leaving BAS and other lodgements overdue, which can limit remission options and worry lenders
• Letting a payment plan default without telling anyone
• Taking the first expensive offer under pressure
• Refinancing without a plan to stay current afterwards
• Not telling the finance broker everything, which causes surprises later

What documents help?

• Current ATO statement or integrated client account balance
• Any notices, including director penalty notices
• Recent BAS lodgements and financial statements
• Details of the property or other security
• Photo ID and details of existing loans
• Your accountant’s contact, if they are helping

The business loan documents checklist lists the common items.

What if my credit is already damaged?

Tax debt and credit issues often travel together. Our page on business loans with bad credit explains how some lenders weigh the security and the plan ahead of the file. If cash flow is the underlying problem, cash flow loans may also help.

ATO payment plan or refinance: how do they compare?

Factor	ATO payment plan	Refinance with a lender
Interest on the debt	Continues to accrue while a balance remains	Replaced by the new lender’s terms
Security	Typically none for smaller balances, though the ATO can ask for it on larger ones	Usually property or other assets
Flexibility	Terms set by the ATO, and a missed payment can end the arrangement	Terms set by the contract, often with defined options
Credit impact	The ATO can disclose certain overdue business tax debts to credit reporting bureaus	Depends on the new lender’s reporting
Ongoing ATO contact	Continues until the balance is cleared	Ends once the ATO is paid out
Cost	No set-up fee	Lender and broker costs apply

Neither is automatically better. A short payment plan on a modest balance may be the cheaper route, while a larger debt with a running clock often points toward a refinance. An accountant or the ATO itself can explain the payment plan side, and we are happy to explain ours.

How fast can an ATO payout happen?

Timing depends on the lender, the security and how quickly documents arrive. Where there is a deadline, such as a director penalty notice or a pending garnishee, say so at the start. Private and non-bank lenders can sometimes move more quickly than banks because they use different assessment processes, but a property valuation, a title search and the legal paperwork still take time. The ATO also needs to provide an accurate payout figure, which is worth requesting early because the balance changes daily as interest accrues. Our guide on how fast private lending can settle explains the steps.

What is the difference between a lodgement problem and a payment problem?

Owners often mix the two. A payment problem means the return is lodged but the money is owed. A lodgement problem means returns or BAS are overdue, so the ATO may have estimated the figure. Lenders usually want lodgements up to date before they will lend, because they need to know the true size of the debt. If you are behind on lodgements, catching them up with your accountant or a BAS agent is often the first practical step. It can also reveal that the real debt is smaller than the estimate.

Does the state or territory I am in change anything?

The ATO is a national body, so the debt process is the same everywhere. What differs is the property side of the deal: stamp duty on any transfers, state land title systems and the way caveats and mortgages are registered. If the security is in a different state to the business, the lender may need to handle two sets of rules. Ownright arranges finance Australia-wide and routinely deals with security located away from the borrower’s home base. For regional security, see loans in regional and remote Australia.

What does it look like when a company is involved?

Where the business is a company, directors can be personally exposed through the director penalty regime for certain unpaid amounts, which is why the timing of any notice matters. A lender will often want the directors to sign guarantees, and may ask for security from the directors personally, such as the family home. That is a serious step, and it is sensible to take independent legal advice. Sole traders and partnerships are personally liable already, so the question is more about which assets support the new loan.

What happens after the ATO is paid?

Clearing the debt is half the job. The other half is not slipping back. Lenders feel more comfortable when the borrower has a plan, such as setting aside GST and PAYG as takings arrive, using a separate account for tax, or engaging a bookkeeper. Many owners find that a modest monthly routine prevents the next problem. If the underlying issue was cash flow, a working capital facility or a restructure of supplier terms may help, and our working capital loans page explains the options.

Can a loan to clear ATO debt be a stepping stone?

For some borrowers, yes. A short-term private loan can clear the ATO and buy time to rebuild the file. After twelve months of clean lodgements and steady trading, a refinance into a mainstream facility may become possible. That is not guaranteed, and it depends on how the business performs, but planning the exit from day one gives you more control. Our guide to ATO debt and your property looks at this path in more detail.

Ready to clear the debt?

If an ATO debt is weighing on the business, a confidential chat costs nothing. Contact Ownright and we will explore what could be possible. If Ownright can’t find the solution, no one can.