If your tax debt balloons, you could consider tax debt loans to pay off the debt. Tax debt can quickly get out of control as a number of factors could contribute to a sizeable debt. These include:
- a fast-growing business
- a bad debt
- bad month
- unexpected expenses
- catching up on outstanding BAS or super lodgements
Any number of reasons could mean you might not be able to pay a tax debt from your available cashflow.
Your first option here will usually be to seek an ATO payment arrangement to pay the debt by affordable instalments over time. You may also seek a remission of general interest charge and penalties as we discuss here.
But a payment arrangement can be more difficult to obtain if you have missed a number of lodgements, previously defaulted on arrangements or have a large tax debt. In these cases, the ATO may require a significant up-front payment (often 50% of the total). Or it may outright refuse a further arrangement and commence enforcement action putting the future of your business at risk. If this is the case, tax debt loans are your next best option.
Tax debt loans – your options
If you have a tax debt you can’t pay, asking your existing bank for finance might not return a favourable response. The good news is, there are now a number of options available to help if you’re in this position. These fall into three categories:
- Secured business loans and finance
- Unsecured business loans
- Director loans secured by a home mortgage
Secured business loans and finance
Secured business loans and finance involve the lender taking security over your company’s assets.
These generally include loans, debtor finance or equipment finance to provide you with additional cashflow to meet your outstanding ATO debt. This type of finance will also require director and shareholder guarantees.
Unsecured business loans
An unsecured business loan allows your company to easily access funds without having to provide security over its assets. However, directors will need to provide personal guarantees.
Unsecured business loans can be a fantastic option. They are fast and simple to set up but this comes at a price. Interest rates are generally higher than other types of finance.
Director loans secured by a home mortgage
If your company isn’t able to obtain finance itself, you need to think about your options. Having a tax debt can indicate other problems for a business, and it may even be insolvent.
You need to confidently see the future viability and have a plan to return to profit before putting the family home on the line to save your business.
The good news with this type of finance is that home mortgages generally come with a lower interest rate than other types of finance. Our preferred lender for these types of loans is Debtstroyer Home Loans.
Whenever a director is lending money to their company we recommend taking a PPSR-registered security interest over the business, just like a bank would. Alternatively advances to pay employee super, wages and other entitlements carry a priority for payment in liquidation.
This means if your business isn’t successful, there’s a better chance of you recouping some of your money.
Any finance should be part of a plan
Finance on its own can be like putting water in a leaky bucket. This can put your business and you personally, in a worse position. No one wants that.
We care about successful outcomes for our clients. So we recommend that putting new finance into any business should be done as part of a larger plan to manage cashflow and improve profitability.
Get on top of your tax debt
If you have a tax debt you can’t pay, are struggling to get an ATO payment arrangement or need help deciding which type of finance is right for you – get in touch with us. Whether it’s help with a difficult payment arrangement, a tax debt loan, or help with more serious financial problems our team can help. Speak to us today on 1300 628 586.
For more information on tax debt solutions, check out our tax debt page.