An ATO debt rarely starts with a business owner deciding not to pay tax.
More often, cash gets tight.
A customer pays late. A major repair lands unexpectedly. Wages have to be covered. Materials need to be purchased. BAS is due at exactly the wrong time.
The business catches up on everything else and tells itself the tax will be dealt with next month.
Then another BAS arrives.
Before long, what started as a temporary cashflow problem has become a significant ATO debt.
For a business in Penrith facing this situation, there may be more than one way forward. An ATO payment arrangement may be appropriate in some circumstances, while some businesses investigate whether refinancing eligible tax debt into another finance structure makes sense.
The important thing is to understand why the debt accumulated and what changes after it is refinanced.
Start With the Actual ATO Position
Before looking at finance, establish exactly what the business owes.
Don’t work from memory or the amount you think is outstanding.
Understand the current position, including the different obligations making up the balance and whether an existing payment arrangement is in place.
You also need to know whether new tax obligations are continuing to be lodged and paid as they fall due.
That’s important because refinancing an old debt won’t solve the problem if the business immediately starts accumulating another one.
How Did the Tax Debt Build Up?
This is the question I want answered before talking about a refinance.
Was there a one-off event?
Did a major customer fail to pay?
Did the business grow quickly and run short of working capital?
Was there a large equipment repair?
Did margins deteriorate?
Has the business been using GST or PAYG amounts to fund normal operations?
Is the business consistently spending more cash than it generates?
Those situations are not the same.
If a viable business experienced a specific cashflow disruption and has since recovered, refinancing an existing liability may be worth investigating.
If the business is still generating a new tax shortfall every quarter, replacing the old debt with a loan may simply create two problems instead of one.
What Is an ATO Payment Plan?
Businesses may be able to arrange to pay eligible tax debts over time rather than paying the entire balance immediately, subject to the ATO’s requirements and the circumstances involved.
For some businesses, that can be an appropriate solution.
It may allow the debt to be progressively reduced without introducing a separate lender.
But don’t judge the arrangement only by whether the regular payment seems affordable.
Understand what the business needs to pay towards the existing debt and what it needs to do about new tax liabilities as they arise.
A payment plan needs to work alongside the business’s ongoing obligations.
Why Would a Business Consider Refinancing ATO Debt?
There can be several reasons a business owner investigates alternatives.
Perhaps the required payments are placing too much pressure on cashflow.
Maybe the owner wants to consolidate or restructure several business liabilities.
The business could be preparing for another funding requirement and wants to understand how the existing tax debt affects its position.
Or the owner may simply want to compare the cost and structure of the current arrangement with other funding options.
None of those reasons automatically means refinancing is better.
They mean there is something worth comparing.
Don’t Compare the Repayment Alone
Suppose the business is making a substantial regular payment towards its tax debt and another finance option produces a lower monthly repayment.
It can be tempting to stop the analysis there.
But lowering a repayment can involve extending the period over which the debt is repaid.
That may change the total cost.
When comparing alternatives, consider the amount being refinanced, interest or other applicable costs, fees, repayment term, security requirements and total repayment commitment.
A smaller monthly payment can improve immediate cashflow while costing more over time.
You need to understand both sides.
Secured and Unsecured Options Are Different
Depending on the business, amount required and available lender options, tax-debt funding may potentially be considered on a secured or unsecured basis.
A secured facility involves providing acceptable security to the lender.
An unsecured business loan doesn’t generally take specific property security in the same way, although guarantees and other lender requirements may still apply.
The availability, pricing, loan amount and assessment criteria can differ significantly.
If property security is being considered, the decision deserves particular care because a business liability is potentially being moved against an important asset.
The fact that security makes a transaction possible doesn’t automatically make using it the right choice.
What If You Own Property?
Property ownership can potentially broaden the funding options available to some businesses.
But don’t begin with:
“I have equity, so let’s use it.”
Begin with:
“What problem are we solving, and what does using this property expose me to?”
If a business tax debt is refinanced using property-backed finance, understand the security position, costs, term and consequences of the new arrangement.
Property equity is a valuable financial resource.
It shouldn’t be used casually simply because it is available.
What If You Don’t Own Property?
That doesn’t necessarily end the conversation.
Depending on the business, amount, trading history, financial position and lender criteria, unsecured business funding may potentially be available.
The assessment can be very different from property-secured finance.
This is where the quality of the underlying business becomes particularly important.
A lender may want to understand turnover, profitability, bank conduct, existing commitments and the circumstances behind the tax debt.
The existence of ATO debt doesn’t tell the complete story of the business.
Is the Business Still Profitable?
This is one of the most important questions.
A business can be profitable and still experience a cashflow problem.
But a business can also accumulate tax debt because there simply isn’t enough profit or cash being generated to meet all of its obligations.
Those situations need different responses.
If the business isn’t producing enough cash to pay normal operating expenses, finance repayments and current tax obligations, adding another loan won’t create profitability.
Before refinancing debt, understand whether the underlying business can support the proposed structure.
Watch What Happens After the Refinance
Imagine a business refinances $150,000 of ATO debt.
The ATO balance is dealt with using the new finance.
For a moment, the problem appears solved.
Then the next BAS falls due.
If the business doesn’t have the cash to pay it, the tax debt starts building again while the business is also repaying the $150,000 loan.
That is exactly the outcome we want to avoid.
A successful restructure needs to address both:
the existing debt
and
the reason new debt was accumulating.
Your Cashflow System May Need to Change
Sometimes the finance solution is only one part of fixing the problem.
The business may also need better systems around tax provisioning and cash management.
That could involve regularly setting aside amounts for tax obligations, improving debtor collection, reviewing margins, reducing unnecessary expenses or working with the accountant to improve cashflow forecasting.
Your accountant or registered tax adviser should provide advice about your tax obligations and the appropriate tax treatment for your circumstances.
A broker’s role is different.
We’re looking at the finance requirement and available funding structures.
Could Debtor Finance Be More Relevant Than Refinancing the ATO?
Sometimes the tax debt is the visible problem, but slow customer payments are the underlying problem.
Suppose the business has $200,000 outstanding to the ATO but also regularly carries a very large debtor ledger because customers take weeks to pay.
Simply refinancing the $200,000 doesn’t change that cash conversion cycle.
Depending on the business, investigating debtor finance or another working-capital structure may be relevant alongside, or instead of, simply replacing the tax debt.
Again, the product should follow the problem.
What If Several Business Debts Have Built Up?
The ATO may not be the only creditor.
There might also be credit cards, short-term business loans, supplier arrears or other commitments.
In that situation, looking only at the tax balance may miss the broader issue.
List the liabilities.
For each one, establish:
current balance
repayment
remaining term
applicable interest or costs
security
payout amount where relevant
Then we can understand what the business is actually carrying.
Consolidating debts can sometimes simplify cashflow, but extending short-term debt over a longer period can also increase the time the business remains indebted.
The structure needs to make commercial sense.
Don’t Wait Until the Situation Becomes Urgent
A business owner can avoid looking at tax debt because the number feels overwhelming.
But delaying the conversation doesn’t make the liability disappear.
If you already know the business is struggling to maintain an arrangement, continuing to accumulate debt or approaching a point where a major payment cannot be made, start looking at the position now.
More time generally gives you more opportunity to understand the business, obtain information and investigate available options.
Urgency reduces choices.
What Should You Have Ready?
If you want to discuss finance relating to an ATO debt, start by gathering enough information to explain the complete situation.
Depending on the transaction, that may include:
current ATO debt information
details of any payment arrangement
recent business financial information
business bank statements
existing business loans
property details if relevant
debtor and creditor information
the reason the debt accumulated
the amount you want to refinance
what you want the new structure to achieve
Don’t worry if you don’t know which finance product you need.
Start with the problem.
ATO Debt Finance in Penrith
If your Penrith business has accumulated ATO debt, don’t assume the answer is automatically another payment plan or automatically a refinance.
Compare the position.
Understand what the business owes, why the debt developed, what the current arrangement costs and whether the business can meet future tax obligations once the existing debt is dealt with.
Then investigate the funding options that may be available.
Talk to Thrive Broking About the Whole Position
If the ATO balance is putting pressure on your business, contact Thrive Broking before deciding how you want to refinance it.
Tell us the approximate debt, whether a payment arrangement is already in place, what other business finance you’re carrying and what has caused the cashflow pressure.
We can look at the finance requirement and investigate available options based on the circumstances of the business.
The objective isn’t simply to move an ATO debt somewhere else. It’s to put the business in a position where the same debt isn’t building again.