Business loans with ATO debt

Tax debt creeps up quietly. A big customer pays late, a quarter’s GST gets used to cover wages, a PAYG withholding payment slides, and by the time the bank looks at your file there’s a balance with the ATO that it won’t lend around. For most banks, overdue tax is close to an automatic no.

For specialist lenders, it’s one of the most routine problems they solve. The debt the bank objected to can simply be paid out as part of the loan.

Why do banks decline business loans when there’s ATO debt?

From a bank’s point of view, tax arrears say three things at once. Cash flow is already stretched. A creditor with strong collection powers is in the queue. And there’s a risk that directors become personally exposed through the director penalty regime. None of that fits a standard credit policy, so the application stops.

A payment plan helps less than you’d hope. Many banks still treat an ATO balance on a plan as a live risk, especially if the plan is recent.

How does a loan pay out the ATO?

With a property-secured business loan, the process is straightforward:

1. The lender assesses the property, what’s owing on it and your plan to repay.
2. You provide a current ATO statement of account showing the balance.
3. At settlement, the lender pays the ATO directly from the loan funds, along with any other agreed payouts.
4. You’re left with one lender, one repayment and no tax balance hanging over the business.

Property-secured loans run from $20,000 to $5,000,000 and can be first mortgages, second mortgages behind your existing lender, or caveat loans over residential or commercial property. Without property, unsecured and cash-flow options (typically $5,000 to $500,000, sized on turnover and bank statements) can sometimes clear smaller tax balances. If you want to check which applies to you, start a 60-second enquiry. There’s no credit check when you first enquire.

What happens if the ATO debt is left to grow?

Tax debt doesn’t sit still. The ATO’s own guidance sets out an escalating set of steps, and several have fixed clocks attached:

ATO action	What it means for you
General interest charge	Accrues on overdue amounts. From 1 July 2025 it is no longer tax deductible, so every dollar of it now costs the business more
Credit bureau reporting	Businesses with an ABN and at least $100,000 overdue by more than 90 days, who aren’t engaging with the ATO, can have the debt reported. You get 28 days’ notice first
Director penalty notice	Directors can become personally liable for unpaid PAYG withholding, GST and super guarantee charge, with 21 days to act once a notice is issued
Garnishee notice	The ATO can direct your bank or customers to pay money owed to you straight to the ATO
Statutory demand	A company has 21 days to pay the debt in full or enter a payment plan, or it risks being wound up

Sources: ATO disclosure of business tax debts, ATO director penalties and ATO legal action.

One detail catches many directors out. Where PAYG withholding, GST or super guarantee charge wasn’t reported within three months of the due date, the ATO says the only way to have a director penalty remitted is for the company to pay the amount in full. That’s often the moment a loan becomes the most practical answer.

What do specialist lenders check first?

Expect questions about:

• The exact balance and whether it’s all due now or partly on a plan.
• Lodgements. Are BAS and tax returns up to date? If not, when will they be? Our page on overdue lodgements covers this.
• Any formal steps already taken, such as a director penalty notice, garnishee or statutory demand. These affect timing.
• The property, if there is one: value, what’s owing and who owns it.
• Why the debt arose and why it won’t happen again. A lost customer or a slow season is a very different story from a business that can’t cover its tax at all.

Illustrative example: clearing GST and PAYG arrears

Illustrative only, not a real client. A civil contractor in south-east Queensland falls behind on BAS after a head contractor goes into liquidation owing it a large progress payment. The ATO balance grows over several quarters, and the bank declines a request to increase the overdraft.

The director owns an industrial unit with modest debt against it. A specialist lender offers a second mortgage behind the existing bank loan, pays the ATO balance at settlement and leaves a small buffer for working capital. The contractor lodges its outstanding BAS, keeps up with new quarters and plans to refinance back to a mainstream lender once two clean years of lodgements and trading are on the record.

Should I use a payment plan instead?

A payment plan can be a sensible choice, and the ATO lets businesses that owe $200,000 or less set one up online. The trade-off is that general interest charge keeps accruing on the plan and is no longer deductible, and the balance can still affect how banks see you. Some owners use a plan to buy time and then refinance. Others go straight to a loan to clear the slate. Our page on borrowing while on an ATO payment plan compares the two, and the guide on ATO interest no longer being deductible explains the cost side.

Let’s clear it and get you back to business

Tax debt is everyday work for us, not a red flag. Tell us the balance, what the ATO has sent and what security you have: about a minute of typing, with no credit check when you first enquire. Your file stays with us rather than being shopped around, and a specialist phones you to work through it.

Please be accurate about the ATO figure and any notices you’ve received. It’s what lets us match you with the right lender on the first attempt. Check if you qualify →