Business loans with ATO debt: how tax owing affects your options

Tax debt is one of the most common reasons business owners hesitate to ask for funding. They assume a lender will see the ATO balance and stop reading. In reality, tax debt is extremely common among small businesses, particularly after a strong growth year or a difficult one, and many lenders are used to assessing it. What matters is not whether you owe the ATO, but how the debt is being managed.

How lenders view ATO debt

When a lender sees tax debt, it is trying to answer three questions:

1. Is the business engaging with the ATO? Lodged BAS and returns show the business is facing its obligations, even if it cannot pay everything at once.
2. Is there a plan, and is it working? A payment plan with regular payments visible in your bank statements is reassuring. Missed instalments are not, because they suggest the business is already stretched before any new repayment is added.
3. Can the business carry both? The tax repayments and the new loan repayments must fit comfortably within your cash flow.

A modest debt on a plan that is being met, with lodgements up to date, is often acceptable to cash flow lenders. A large, growing debt with overdue lodgements and no plan is much harder.

The credit reporting risk

The ATO can disclose certain overdue business tax debts to credit reporting bodies when specific criteria are met, after notifying the business. Once that happens, the debt appears on the business’s credit report and can make borrowing harder and supplier terms tighter. The ATO website explains when disclosure can occur. Engaging with the ATO, such as entering and keeping to a payment plan, is important to avoid reaching that point.

Why tax debt has become more expensive to carry

The ATO charges general interest charge (GIC) on overdue amounts, compounding daily. For income years starting on or after 1 July 2025, GIC and shortfall interest charge are no longer tax deductible. In practical terms, carrying ATO debt now costs a business more after tax than it used to, which has prompted many owners to look at clearing it with other funding instead.

Owe the ATO and need funding? Start your enquiry and include your current balance and plan details. No credit check to enquire.

Using funding to clear tax debt

Some businesses use a loan to pay off ATO debt in full or in part. It can make sense when:

• Penalties and interest are compounding faster than a loan would cost.
• The payment plan instalments are too large for the business to sustain.
• There is a risk of the debt being disclosed to credit reporting bodies.
• Directors face personal exposure through director penalty notices.

It does not make sense if the business cannot afford the loan repayments either, or if the tax debt is a symptom of a business that loses money. Our guide on ATO payment plans versus business loans compares the two in detail, and ATO tax bill funding covers paying an upcoming bill.

Director penalty notices

For companies, unpaid PAYG withholding, GST and super guarantee can create personal liability for directors through director penalty notices. If you have received one, time matters, and you should get advice promptly. Our guide to director penalty notices explains the basics, but your accountant or adviser should guide the response.

Strengthening a file with tax debt

Action	Effect
Lodge all outstanding BAS and returns	Shows engagement and gives an accurate balance
Set up or renegotiate a payment plan	Turns an unmanaged debt into a managed one
Keep every plan instalment	Builds a visible track record in your statements
Get an ATO portal statement	Gives the lender a clear picture quickly
Disclose upfront	Avoids surprises during assessment

Secured options for larger tax debts

When tax debt is large, unsecured lending may not stretch far enough. If you or a related party own property, a secured business loan from $20k to $5m can clear substantial ATO debt in one step, often quickly, with $20k to $250k possible same day. This can stop compounding interest and remove the risk of escalating ATO action, but it puts property behind the debt, so the decision deserves care.

Consolidating tax debt with other debts

If the ATO is one of several creditors, a single facility that clears the tax debt and other short-term debts can simplify repayments and protect your credit file. See business debt consolidation.

An illustrative example

An illustrative construction company grew quickly last year and fell behind on GST and PAYG withholding as it funded materials for new projects. It now owes the ATO a significant amount on a payment plan whose instalments are straining cash flow. Its lodgements are up to date and every plan payment has been made. A cash flow lender sees a business engaging with its obligations and strong progress payments, and offers a facility to clear the plan, replacing large monthly instalments with weekly repayments the business can carry.

Talk to us about your tax position

Owing the ATO is common, and it does not have to stop you getting the funding you need. Tell us how much you owe, whether lodgements are up to date and whether a plan is in place. There is no credit check to enquire, your information is not passed around a list of lenders, and a real person reads your enquiry. Accurate tax details help us match you to a lender who will genuinely consider it. Apply now.