ATO Debt vs Business Loan for Australian Business Owners

When a Business Loan or Short-Term Finance Can Be the Smarter Option

Most business owners think about short-term finance the same way. It is something you use when something has gone wrong.

I look at it differently.

Sometimes short-term finance is not about rescuing a business. It is simply about replacing expensive debt with a better structure.

And when it comes to ATO debt, the numbers have changed.

ATO Debt Is More Expensive Than It Used to Be

For a long time, sitting on an ATO payment plan could be a reasonable option. You paid the debt down gradually, and the interest charged by the ATO could generally be claimed as a tax deduction.

That changed on 1 July 2025.

The ATO's general interest charge currently sits at 11.17% (@2026), compounds daily, and is no longer tax deductible.

That means a business carrying tax debt is now paying double-digit interest without the tax deduction that previously reduced the effective cost.

For many businesses, that makes an ATO payment plan a much more expensive form of finance than they realise.

When Refinancing Can Make Sense

Refinancing an ATO debt into a properly structured business loan or commercial short-term facility can sometimes reduce the overall cost and provide repayments that better suit the way the business actually generates cash.

Depending on the circumstances and how the borrowed funds are used, the interest may also be tax deductible. That is something every business owner should confirm with their accountant. But the decision should not be based on the interest rate alone. The repayments need to fit the business.

There is little benefit in aggressively paying down an ATO debt if doing so leaves the business short of cash for wages, suppliers, stock or day-to-day operating expenses.

This Is Not Necessarily About a Business in Trouble

One client I worked with had around $95,000 owing to the ATO. The business was trading well and comfortably meeting its payment plan. He had never considered refinancing because he was not struggling. Once we compared the cost of leaving the debt with the ATO for another two years against refinancing it with the right commercial loan, the difference was significant. The loan was not about getting him out of trouble. It was simply a cheaper way to repay a debt he already had. That is an important distinction.

Short-term finance does not always mean a business is under pressure. Sometimes it is simply a cash flow and cost-management decision.

Compare the Total Cost, Not Just the Rate

If you have an ATO debt, start by working out what it will actually cost you over the next twelve or twenty-four months. Then speak with an experienced commercial finance broker who can compare that cost against a properly structured finance facility and help determine whether refinancing could deliver a better outcome for your business.

Look beyond the headline interest rate and consider:

the total interest cost
the loan term
the monthly repayments
establishment fees
early repayment fees
whether the repayments suit your cash flow

A lower interest rate does not automatically mean a better facility.

A slightly higher rate with the right term and repayment structure can sometimes produce a better outcome for the business.

For Australian SMEs, the key is understanding whether continuing to carry ATO debt is still the most cost-effective option. Comparing an ATO payment plan with a business loan or short-term loan can highlight differences in total, interest cost, repayment flexibility and the impact on business cash flow.

The Right Structure Should Fit the Business

The right finance structure today may not be the right one in twelve or eighteen months.

Once the ATO debt has been cleared, the business may no longer need the same facility at all. That is why I believe business finance should be reviewed regularly rather than simply put in place and forgotten.

If you have an ATO debt sitting on a payment plan, it is worth comparing the true cost of leaving it there against the cost of refinancing it.

Sometimes the best decision is to stay with the ATO. Sometimes it is not. The important thing is to understand the numbers before you decide for your business today.

At Pfitz Financial, we help Australian businesses secure the right finance solution with the right lender.

We take the time to understand your business, its financial position and your objectives, then work alongside you to identify funding solutions that support both your immediate needs and longer-term goals.

If you are carrying ATO debt, reviewing an existing facility or considering your next funding move, the right structure can make a meaningful difference to both cost and cash flow.

For more information on working capital solutions, business loans, short-term loans or asset finance, visit our Questions and Answers page.