Can I Get a Loan to Pay Off Tax Debt?
Can I get a loan to pay off tax debt? When the debt belongs to a business, a property-secured business loan is one way to clear it, and the details depend on each lender's current policy. HomeSec lends to companies, trusts and sole traders for business and investment purposes only, with real estate as security, and can pay the money straight to the ATO.
If an ATO debt is weighing on the business, see if you qualify. Eligibility depends on the lender’s assessment.
Key takeaways
- A business purpose must be present, so money for personal or domestic use is not a fit.
- The loan is secured by real estate: residential, commercial, rural or vacant land, on a first or second-ranking mortgage.
- Loan amounts run from $20,000 to $5,000,000, and interest can be capitalised for up to 6 months.
- Money can be paid directly to the ATO, in as little as 24 hours from a clean, complete scenario.
- Credit history is considered but never rules a borrower out on its own.
How does it work, step by step?
The process starts with a conversation, then moves to a short document check and then to the release of funds. Every stage depends on the lender’s assessment.
- Outline the deal. Share the amount, the purpose, the timing, the property and how the loan will be repaid. A Lending Manager gives an indicative answer on that call, usually in minutes.
- Hand over the documents. Conditional approval needs photo ID, a rates notice and the most recent mortgage statement, and gathering them takes about fifteen minutes.
- Release of funds. Money can be released in as little as 24 hours from a clean, complete scenario, either to the borrower’s account or straight to the ATO.
Can a loan be used to pay off a tax debt?
Yes, when the debt is tied to a business purpose and the lender’s policy allows it. HomeSec provides credit wholly and exclusively for business and investment purposes, so a loan to clear tax has to serve the business.
A tax debt owed by the business itself is the plainest case. A debt that is really about personal or household spending is not a fit. Borrowers can be companies, trusts or sole traders, including start-ups, and there is no minimum trading period.
Lenders differ in what they will accept. That is why the purpose of the funds is one of the first things raised when a deal is outlined. HomeSec also has a dedicated page on loans to pay ATO tax debt.
What are the options for dealing with an ATO debt?
A business loan is only one option. The ATO publishes information for businesses on managing and paying tax debts, including how to talk to the ATO about a payment arrangement. For background on timeframes, see how long the ATO gives businesses to pay a tax debt.
The Australian Government’s business.gov.au site has general guidance on finance and funding options for businesses. Moneysmart, run by ASIC, has general information on borrowing.
| ATO payment arrangement | Property-secured business loan | |
|---|---|---|
| Who the business deals with | The ATO directly | A lender, such as HomeSec |
| Where the terms come from | ATO guidance and discussion with the ATO | The lender. HomeSec sets the interest rate per scenario |
| What secures it | Refer to ATO guidance | Real estate, on a first or second-ranking mortgage |
| Where the money goes | Payments are made to the ATO under the arrangement | To the borrower’s account or straight to the ATO |
This table is a general comparison, not a recommendation.
How does a property-secured business loan work for a tax debt?
The business borrows against real estate, uses the money to clear the ATO balance, and repays the lender on the agreed terms.
The security can be residential, commercial, rural or vacant land, on a first or second-ranking mortgage. More than one property can be pooled to secure a single loan (cross-collateralisation), and that can include the borrower’s home.
- Amount: from $20,000 to $5,000,000.
- Repayments: interest-only, or interest capitalised for up to 6 months, so there can be nothing to pay for the first 6 months.
- Term: open, with no minimum and no maximum, starting from one month. The borrower chooses the term and can extend it.
- Early repayment: possible at any time without penalty, and unused months of capitalised interest are rebated.
- Interest rate: set per scenario and priced against the loan amount and the security.
The money can be sent straight to the ATO, which keeps the payment tied to the tax debt it was borrowed for.
What does HomeSec look at?
The assessment centres on the property, the business purpose and how the loan will be repaid.
Credit history is considered, but it is never disqualifying on its own. Defaults, arrears and thin credit files do not rule a borrower out. For general reading on this, see how secured loans for bad credit work.
HomeSec does not ask for cashflow records or financial records. It also does not require a sworn valuation, a minimum trading period or a serviceability test.
The loan-to-value ratio (LVR) can reach 80% on residential security and 70% on commercial security. It is lower on large acreage, and it may be reduced on properties worth less than $800,000.
How the loan will be repaid is part of the very first conversation, alongside the amount, the purpose and the property.
Who can this suit, and when is it not the answer?
A property-secured loan can suit a business owner who holds real estate, needs the money for a business purpose and has a clear plan for repaying it. Where credit history has made other finance hard to arrange, the way HomeSec treats credit history may also be relevant.
This type of loan is not a fit in these situations:
- there is no real-estate security to offer
- the loan would sit third behind two existing mortgages
- the money is for personal or domestic purposes.
Borrowing is also not always needed. If a payment arrangement with the ATO is available and the business can keep up with it, that may be enough without taking on a secured loan. The ATO’s guidance on paying tax debts is a useful reference point before any borrowing decision.
What details are needed to get started?
An indicative answer starts with seven details about the property and the loan:
- roughly what the property is worth (an owner’s own estimate is fine)
- the property’s address
- what is owing on it, and to whom
- how much to borrow
- how long the loan is for
- how many people are on the title
- what the money is for.
A Lending Manager can usually give an indicative answer on that first call, often in minutes. Moving to conditional approval then needs photo ID, a rates notice and the most recent mortgage statement. Every application remains subject to the lender’s assessment.
What should be weighed before borrowing to clear tax?
Credit for business purposes is not regulated under the National Consumer Credit Protection Act 2009 (the NCCP Act), and the protections available to consumer borrowers do not apply. Understanding that before signing matters.
Some general points to think through, drawing on Moneysmart’s information about borrowing:
- Total interest cost: the interest rate is priced per scenario, so the cost over the full term is worth working out.
- The repayment plan: how and when the loan will be cleared, whether from business income, a property sale or refinancing.
- Risk to the security: a property used as security can be at risk if the loan is not repaid.
An independent accountant or financial adviser can help compare a loan with other options in light of the whole business position.
Talking to HomeSec
HomeSec Business Finance Pty Ltd has been lending since 2004. It is a member of CAFBA, SBAA and VCCI.
HomeSec lends almost anywhere in Australia, across metro, regional and rural areas. As a guide, it looks at towns of 3,000 or more people, and smaller populations are considered on merit.
The team can be reached on 1300 93 83 87, Monday to Friday, 8:30am to 5:30pm Melbourne time.
Ready to take the next step on a tax debt?
If an ATO debt is holding the business back, the next step is a short conversation about the property, what is owing on it, how much is needed and what it is for. A rough property value and the most recent mortgage statement are the main things to have on hand, and starting takes only a few minutes. Check your eligibility to see if you qualify.
No obligation. Eligibility is subject to assessment.
FAQ
Can a business loan be used to pay an ATO debt?
Yes, when the debt relates to a business purpose and the lender’s policy allows it. HomeSec lends wholly and exclusively for business and investment purposes, secured by residential, commercial, rural or vacant land. Each lender sets its own criteria, and every application depends on the lender’s assessment. The purpose of the money is one of the first things discussed.
Can the lender pay the money straight to the ATO?
Yes. HomeSec can release the funds straight to the ATO, or to the borrower’s own account if that is preferred. Paying the ATO directly keeps the money tied to the tax debt it was borrowed to clear. Funds can be released in as little as 24 hours from a clean, complete scenario, subject to the lender’s assessment.
Does bad credit or a tax debt rule me out of a business loan?
Not on its own at HomeSec. Credit history is considered, but defaults, arrears and thin files do not rule a borrower out by themselves. An existing ATO debt is exactly the kind of business obligation the loan can be used to clear. The assessment focuses on the real-estate security, the business purpose and how the loan will be repaid.
Can I use my home as security for a loan to clear a business tax debt?
Yes. The borrower’s home can be the security for a HomeSec loan, as long as the money is for a business purpose. Residential security can go up to 80% LVR, and this may be reduced on properties worth less than $800,000. A home used as security can be at risk if the loan is not repaid, so this is worth weighing carefully.
Are there repayments to make straight away?
Not necessarily. Interest can be capitalised for up to 6 months, which means there can be nothing to pay for the first 6 months. Alternatively, the loan can run on interest-only repayments. There are no daily or weekly direct debits, and the loan can be repaid early at any time without penalty.
Does HomeSec need financial statements to assess a tax debt loan?
No. HomeSec does not ask for cashflow records or financial records, and there is no serviceability test or minimum trading period. For conditional approval, the list is photo ID, a rates notice and the most recent mortgage statement. Property value is assessed without a sworn valuation. Credit history is still considered as part of the lender’s assessment.
This is general information only and does not take into account your objectives, financial situation or needs. All applications are subject to lending criteria, assessment and approval.