Small business restructuring or refinancing: which should come first?

Small business restructuring has become a popular option since it was introduced, and for good reason. It lets a small company deal with its debts through a plan while the directors stay in charge. If your accountant or an adviser has mentioned it, you’ll want to know how it compares with the simpler-sounding alternative: borrowing to pay the debts out.

They solve different problems. Knowing which one you have is the whole decision.

What is small business restructuring?

It’s a formal process under the Corporations Act for eligible small companies. ASIC’s overview of small business restructuring sets out the key rules:

• Eligibility: total liabilities of no more than $1 million on the day of appointment, and no recent use of restructuring or simplified liquidation by the company or its directors in the past seven years.
• Before a plan is proposed: employee entitlements that are due must be paid, and all required tax returns and documents lodged. The tax itself doesn’t need to be paid first.
• Timing: the plan is generally proposed within 20 business days, extendable once by up to 10. Creditors then have 15 business days to vote.
• Approval: a majority in value of the creditors who vote.
• Control: directors keep running the business day to day, but need the practitioner’s written consent for transactions outside the ordinary course.

The ATO’s guidance adds that SBR doesn’t apply to unincorporated businesses or individuals, and that the ATO won’t consider a plan until all supporting information has been provided.

ASIC’s data suggests the process can work. Of 573 companies that completed restructuring plans by 30 June 2024, 89.4% remained registered (ASIC annual insolvency data).

How does a refinance compare?

	Small business restructuring	Refinance
Who’s eligible	Companies with liabilities up to $1m, meeting the conditions	Any business with property equity or steady turnover a lender will support
What creditors receive	What the plan offers, often part of the debt	The full amount, paid at settlement
Creditor vote	Required	Not needed
Formal process	Yes, with a registered practitioner	No
Who controls the company	Directors, with limits	Directors
Cost	Practitioner’s fees plus plan payments	The loan’s cost over its term
Lodgements	Must be up to date first	Helpful, not always essential for secured loans

A refinance simply replaces many creditors with one lender. Property-secured business loans from $20,000 to $5,000,000 can pay the ATO, suppliers and expensive short-term debt directly. Unsecured and cash-flow options, typically $5,000 to $500,000, suit smaller balances and are sized on turnover.

Want to know if a refinance is realistic before committing to a formal process? Start a 60-second enquiry. There’s no credit check when you first enquire.

Which should come first?

A simple way to think about it:

1. If the business could repay all of its debts over a reasonable term, given the right loan, refinancing is usually the simpler first step. Everyone is paid in full and nothing formal goes on the record.
2. If the debts are larger than the business could ever repay, even with good finance, restructuring may be the better tool, because it reduces what’s owed.
3. If the business loses money at its core, neither fixes that. Talk to your accountant about the business model first.

Director penalties can tip the balance. Under the ATO’s director penalty rules, appointing a restructuring practitioner can remit a penalty only for amounts reported on time. For amounts reported more than three months late, only paying in full remits it. In that situation, a refinance may protect the directors in a way a restructuring can’t. Get advice on your specific position.

Our way-out finder helps you sort which of these you’re closest to.

Can a refinance fail where SBR succeeds?

Yes. If there’s no property and turnover can’t support a loan big enough to clear the pressure, a refinance won’t get across the line. Equally, an SBR plan can fail if creditors, often led by the ATO as a large creditor, vote it down. It’s sensible to find out early whether funding is available, so that if you do pursue a restructure, it’s because it’s genuinely the better path.

Illustrative example: close to the line

Illustrative only, not a real client. An IT services company in Brisbane owes the ATO and several suppliers a combined amount just under the SBR threshold. Its accountant suggests restructuring. The company is profitable again after losing a large client, and one director owns an investment unit with good equity.

A specialist lender offers a second mortgage over the unit, large enough to pay every creditor in full. The directors compare the loan’s cost with the practitioner’s fees and a plan that would pay creditors only part of the debt. They choose the refinance, because it avoids a formal process, pays everyone, and resolves their director penalty exposure outright.

Where do I start if I’m not sure which applies?

Start with the numbers: a list of every debt, what the business earns without the one-off hits, and what property or turnover could support a loan. Then get two views. Your accountant or a registered practitioner can tell you what a restructuring would involve. We can tell you, without a credit check, whether a refinance is realistic. For background on the formal routes, see alternatives to voluntary administration and before you call an insolvency firm. If a refinance looks likely, using property equity explains how the loan usually works.

See the funding answer before you choose a process

Restructuring and refinancing are both legitimate; we just want you choosing between them with real information. Our form takes about a minute and involves no credit check when you first enquire. It goes to one team rather than being spread across lenders, and a specialist phones you with a straight view on the refinance side.

Please be accurate about total debts, who they’re owed to and any director penalty notices. It’s the difference between a guess and a proper answer. See if you qualify →