Quick answer
ATO debt and overdue lodgements make banks cautious, but alternative funders consider them case by case. What helps is being up to date on lodgements, having a payment plan in place and a clear explanation. Property-secured and asset-backed routes carry the most flexibility; unsecured routes depend on how current your cash flow looks.
Key points
- Contact the ATO early. It says it will work with you, and a payment plan may be possible.
- General interest charge keeps accruing on unpaid amounts, so the debt grows while you wait.
- Funders look at lodgement status, plan compliance and the cause of the debt.
- Funding to clear tax debt needs a repayment plan that is cheaper and more sustainable than the debt itself.
- First step
- Lodge anything overdue and contact the ATO
- Funders consider
- ATO debt case by case, not as an automatic no
- Helps
- A payment plan you are meeting, and current lodgements
- Hand over
- ATO statement of account, plan details, recent BAS
A tax bill that slipped, a BAS that was never lodged, a payment that was missed in a quiet quarter: these are among the most common reasons a bank declines a small business. They also feel like the most shameful, which stops owners asking for help early. It shouldn’t. Tax debt is a cash-flow problem with a known address, and there are routes designed to work with it.
How do funders see ATO debt?
A bank’s policy often treats ATO debt as a red flag. Other funders weigh the circumstances:
- Lodgement status. Are BAS and returns up to date? An unlodged BAS suggests the business is not in control.
- Whether there is a plan. The ATO may agree a payment plan. A debt on a plan that is being met reads very differently from one ignored.
- Cause. One bad quarter after a sale falls through is different from years of arrears.
- Size relative to the business. A small debt against healthy turnover is manageable; a large one needs a fix.
- Security. Property or assets reduce the funder’s risk, so these routes are more flexible.
Past credit issues and ATO debt are considered case by case on these routes, rather than being an automatic decline.
What does the ATO itself say to do?
The ATO’s advice is consistent: contact it as early as possible, before the due date if you can. It says it will then work with you to find a solution. You can also have your tax agent or authorised representative make contact for you. Points from the ATO:
- If paying by the due date is hard, a payment plan may be possible, and its online estimator shows how long the debt would take to clear and the interest you’d pay.
- A general interest charge applies to amounts unpaid after the due date, and on payment plans it keeps accruing and compounds daily, so clearing the debt sooner reduces it.
- Lodging late can carry penalties, so lodge even if you cannot yet pay.
What are the funding routes if you owe the ATO?
| Situation | Routes that may fit | Why |
|---|---|---|
| Equity in property, clear exit | Property-secured loan or caveat loan | Security reduces the weight placed on the debt |
| Owed money by good customers | Invoice-backed funding | The customers’ reliability carries the case |
| Equipment owned outright | Sale and leaseback | Asset value is the security |
| Healthy recent cash flow | Cash-flow lending | Recent statements can outweigh older arrears |
| Debt unmanageable | Formal help first | See the next section |
Illustrative example only. A trade supplies business missed two quarterly BAS payments after a major customer failed. It has now lodged everything and agreed a payment plan with the ATO, which it is meeting. With commercial property owned, a short property-secured loan could clear the balance faster than the plan would, if the repayments are workable.
Should you borrow to pay the ATO?
Only if the arithmetic works. The ATO’s general interest charge is a real cost, so clearing a debt can save money. But a new loan has its own price, fees and repayments, and if it just swaps one problem for another with a shorter fuse, you have made things worse.
Ask three questions: Is the new repayment sustainable out of normal cash flow? Is the total cost of the loan less than the cost of staying on the ATO plan? And has the root cause been fixed? Use our guide to total cost in dollars to compare.
What if the business is in serious trouble?
AFSA’s small business support page points owners to free and government-backed help, including financial counselling and small business restructuring. ASIC describes restructuring as a process for eligible companies where the company keeps control while it works out a plan with a restructuring practitioner. Eligibility includes total liabilities of $1 million or less, among other conditions. These are decisions for qualified advisers; we mention them because it is better to know they exist.
How do you approach the ATO before you approach a funder?
Sequence matters. If lodgements are overdue, lodge them. Then contact the ATO, or have your tax agent do so, and find out what arrangement is possible. The ATO says it will work with you to find a solution when you make contact early. A funder will prefer to see a business that is back in control, with an arrangement in place, than one that has been silent.
When you speak to the ATO, have your numbers ready: what you can pay now, what you can pay regularly and why. The ATO’s online estimator can help you test a plan. Write down what is agreed and keep evidence of every payment, since you will be asked for it later.
What does a funder do with the explanation you give?
It weighs it against the evidence. A short account that matches your statements and lodgement history is persuasive. For instance, a major customer failed, you lost a quarter’s income, and you have since replaced the work and caught up on your BAS. A vague account that does not match the numbers is not. Be accurate about amounts and dates, and do not minimise. Funders can see the ATO position on your statement of account, and a mismatch costs you trust.
What do you need to hand over?
- A recent ATO statement of account, showing what is owed.
- Details of any payment plan, and evidence you are meeting it.
- Lodgement status for BAS, PAYG and returns.
- Recent business bank statements.
- A short explanation of what happened and what has changed.
Ready to see how a funder would read yours? Tell us the situation and a specialist will explain what is realistic.
Where does this leave you?
Not out of options. The enquiry is quick, involves no credit check, and your details are not sent to a pile of lenders. A real person reads what you’ve written and talks to you plainly. Be accurate about the amount owed and your lodgement status, because that is what lets us match you correctly the first time. See if you qualify.
Frequently asked questions
Can I get funding while I owe the ATO?
Often yes, case by case. Funders prefer to see lodgements up to date and a payment arrangement being honoured. Property-secured and asset-backed routes tend to be more flexible.
Should I use a loan to pay the ATO?
Only if it genuinely leaves you better off. The ATO says a general interest charge applies to unpaid amounts and that clearing a debt sooner reduces it, but a new loan has its own cost and repayments. Compare total dollars and check the repayments are sustainable.
What if I haven't lodged my BAS?
Lodge it, even if you cannot pay it, and contact the ATO. Lodging late can carry penalties, and funders find it much easier to assess a business that is up to date.
Is there anything for businesses in serious trouble?
Small business restructuring is a formal process for eligible companies with total liabilities of $1 million or less. It requires a registered liquidator as practitioner, so speak to a qualified adviser first.