Owing the ATO is stressful, and it has become more expensive. If your business is carrying a tax debt, paying it out with a business loan can sometimes save money and take the pressure off. It isn’t right for everyone, but it’s worth understanding the benefits and the trade-offs.

Why ATO debt costs more than it used to

The ATO charges the general interest charge (GIC) on overdue tax debts. For October to December 2026, the GIC is 11.51% a year, and it compounds daily. On top of that, from 1 July 2025 the GIC and shortfall interest charge are no longer tax-deductible. Before then, many businesses could at least claim the interest as a deduction.

In other words, every dollar of ATO interest now comes straight out of your pocket.

The benefits of using a business loan

• A lower rate is possible. Depending on the lender, your business and any security you offer, a business loan rate may be lower than the GIC.
• The interest may be tax-deductible. Interest on a loan used to pay business-related tax debts, such as GST, PAYG withholding or PAYG instalments, may be deductible where the borrowing is connected to your business. Check this with your accountant.
• Fixed repayments and a clear end date. You know exactly what you’re paying and when the debt will be gone.
• Less pressure from the ATO. Paying in full ends the risk of garnishee notices and recovery action on that debt.
• Protection for directors. Company directors can become personally liable for unpaid PAYG withholding, GST and super guarantee charge through director penalty notices. Clearing these debts removes that risk.
• Your credit file stays clean. The ATO can report business tax debts of $100,000 or more that are more than 90 days overdue to credit reporting bureaus, unless you’re on a payment plan and meeting it. A listing like this can make future finance much harder.

Types of finance that can be used

• Unsecured business loans. Quick to arrange, often with short terms of 1 to 3 years. Rates are usually higher because there’s no security.
• Secured business loans. Secured against property or other assets. Usually lower rates and longer terms.
• Equity in your home or investment property. Often the lowest rate, but it puts your property on the line and can stretch the debt out over many years.
• Refinancing existing equipment or vehicles. Releasing equity from assets you already own can free up cash to clear the debt.

When it might not be the right move

A business loan doesn’t make the debt go away. It moves it. Before going ahead, consider:

• Some unsecured loans cost more than the GIC. Always compare the total cost, including fees, not just the headline rate.
• The cause of the debt. If the business isn’t putting enough aside for tax, a loan only buys time. Fixing cash flow and setting money aside each month matters too.
• An ATO payment plan may be enough. For smaller debts you can repay quickly, a payment plan with the ATO may be simpler.
• Serious financial difficulty. If the business is struggling to pay its debts as they fall due, speak to your accountant or a qualified adviser before borrowing more.

What lenders will want to see

• Your ATO statement showing the debt and any payment plan
• Recent business bank statements, often 6 to 12 months
• BAS and, for larger loans, financial statements
• Evidence that your tax lodgements are up to date
• A short explanation of how the debt arose and how you’ll stay on top of tax from here

A typical scenario

Take a café owner who fell behind on BAS during a quiet winter and now owes the ATO $85,000 in GST and PAYG withholding. The GIC is adding up each day and they’re worried about a director penalty notice. A lender could provide a business loan secured against the café’s equipment and an investment property, paying the ATO in full. The business then makes one fixed monthly repayment, and their accountant sets up a separate account to put tax aside each week.
This is an illustrative example only. Every situation, lender and outcome is different.

Frequently asked questions

Can I get a business loan if I already have an ATO debt?

Yes. Many business lenders will lend specifically to clear an ATO debt, as long as the business can afford the repayments and your lodgements are up to date.

Is the interest on the loan tax-deductible?

It may be, where the borrowing is connected to your business, for example to pay GST or PAYG withholding. Interest on borrowing to pay personal income tax generally isn’t deductible. Your accountant can confirm your position.

How quickly can a business loan be arranged?

Unsecured business loans can sometimes be approved within days. Secured loans take longer because the security has to be valued and documented.

Should I use my home loan instead?

It can give you a lower rate, but it ties the debt to your home and may spread it over many years. We can compare both options so you can see the real cost. See our article Can you get a home loan with an ATO debt?

Get your options in one conversation

We’ll look at your debt, your cash flow and your assets, and compare the cost of a business loan, an equity release and staying on an ATO payment plan, so you can decide what’s best for your business.

General information only. This article doesn’t consider your objectives, financial situation or needs, and isn’t tax or credit advice. Speak to your accountant about your tax position and whether loan interest is deductible for you. Business finance is arranged by Papara Pty Ltd t/a Stratium Finance (ABN 63 666 308 943), Corporate Credit Representative 571077 of COG Aggregation Pty Ltd, ACL 389527. All loans are subject to lender approval, terms, conditions, fees and charges.