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Dealing with Tax Debt? Here’s How a Business Line of Credit Can Help

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Over $400 million in business loans Australia-wide.

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Dealing with tax debt is one of those business challenges that can quickly become stressful — not just financially, but emotionally too. When the ATO (or any tax authority) starts sending letters, deadlines loom, and penalties build up, the pressure can feel relentless. Many business owners find themselves caught between wanting to stay compliant and simply not having the cash flow to pay a lump sum right now.

If that sounds familiar, you’re not alone — and there are practical ways to get back in control. One of those options is using a business line of credit to manage or clear tax debt. But is it the right move for your business? Let’s look at how it works, what to consider, and the key benefits and risks.

Understanding the Challenge: Tax Debt and Cash Flow

Tax debt often doesn’t come from poor management — it comes from cash flow timing. Your business might be profitable on paper but still short on liquid cash when the tax bill arrives. Maybe clients are paying late, or you’ve had to invest heavily in stock or wages during a busy period.

Whatever the cause, unpaid tax can escalate quickly. The ATO adds interest and penalties, and once arrears start building, it becomes harder to catch up. The problem isn’t always that the business is struggling — it’s that the timing of cash in and cash out doesn’t align.

That’s where short-term finance, like a business line of credit, can be a smart solution.

What Is a Business Line of Credit?

A business line of credit is a flexible funding facility that gives you access to a set limit — say $100,000 or $250,000 — which you can draw down when needed. Unlike a standard loan, you don’t receive all the funds upfront. Instead, you only use what you need, when you need it, and you only pay interest on the amount you draw.

It works much like a business overdraft, but with often better rates, higher limits, and more flexibility. You can draw, repay, and redraw funds at any time, depending on your business needs.

When it comes to tax debt, this flexibility can make a big difference.

Using a Business Line of Credit to Manage Tax Debt

Here’s how a business line of credit can help:

  1. Immediate Access to Funds:
    If you receive a tax bill that you can’t pay in full right away, drawing on your line of credit allows you to clear the debt immediately. This stops further penalties and interest from accumulating with the ATO.
  2. Protects Cash Flow:
    Instead of draining your operating cash or delaying supplier payments, you can spread the cost of your tax repayment over a few months by using your credit line strategically. It helps you stay current with your obligations without disrupting business operations.
  3. Preserves Relationships and Credibility:
    Staying on good terms with the tax office is crucial. Using a credit facility to pay off debt quickly can demonstrate that you’re proactive and committed to compliance — which can help maintain your business’s reputation and reduce scrutiny.
  4. Flexible Repayment:
    You can repay the line of credit as cash flow improves, rather than being locked into rigid repayment terms like a traditional loan. That flexibility is valuable if your income fluctuates seasonally.

In essence, a business line of credit can turn a lump-sum problem into a manageable, short-term solution.

The Advantages of Using a Business Line of Credit for Tax Debt

Let’s look at the key benefits in more depth:

1. Speed and Simplicity

Tax debt issues often come with tight deadlines. A business line of credit gives you quick access to funds when you need them most — without the lengthy approval process of a standard loan. Once the facility is approved, you can draw down funds instantly whenever required.

2. Cost-Effective Compared to ATO Interest

The ATO’s interest rate on overdue tax (known as the GIC – General Interest Charge) is usually higher than most business line of credit rates. Paying your tax debt using a line of credit may actually reduce your overall cost, especially if you repay the balance within a few months.

3. Protects Your Business from Enforcement Action

If tax debt continues unpaid, the ATO can issue garnishee notices, freeze accounts, or take legal action. Using a line of credit to pay off or reduce your debt can help avoid those consequences and give you breathing space to restructure or stabilise your finances.

4. Maintains Business Operations

You don’t have to halt investment or growth to deal with tax debt. A line of credit allows you to manage both — continue running your business while handling your obligations in a structured, manageable way.

5. Peace of Mind

There’s real value in removing that constant background worry. Knowing your tax is handled lets you focus on running your business rather than firefighting cash flow problems.

Things to Consider Before Using Credit for Tax Debt

While a business line of credit can be an effective tool, it’s not a cure-all. It’s important to use it strategically.

  • Short-term solution:
    A line of credit is designed for short-term working capital management, not long-term debt. It works best if you can repay it within months, not years.
  • Interest and discipline:
    Even though interest rates are often lower than ATO charges, it’s still debt. Make sure you have a clear repayment plan in place.
  • Avoid dependency:
    Using credit to cover tax should be a tactical decision, not a recurring habit. If you find yourself relying on it frequently, it may be time to revisit cash flow forecasting or pricing strategies.
  • Seek professional advice:
    An accountant or financial adviser can help you weigh up your options and ensure you’re managing tax and finance in the most sustainable way.

When It Makes Sense

A business line of credit is most effective for tax debt when:

  • Your business is fundamentally healthy but facing short-term cash constraints.
  • You have incoming revenue expected soon that will allow you to repay the facility.
  • You want to stop ATO penalties and maintain compliance without hurting day-to-day operations.

It’s less suitable if your business is already struggling with deeper structural cash flow issues. In that case, a more comprehensive restructuring or payment arrangement may be better.

How We Can Help

Yes — a business line of credit can be a very good solution for dealing with tax debt, provided it’s used wisely. It offers fast access to funds, flexibility in repayment, and often lower costs than letting tax arrears grow. Most importantly, it helps protect your cash flow, reputation, and peace of mind.

At Secured Lending, we understand how stressful tax debt can feel, especially when you’re trying to focus on running your business. Our team helps business owners access funding quickly and responsibly — including business lines of credit that can ease the pressure of tax payments and keep operations moving smoothly.

We know every situation is different, and timing is critical. If you’re facing a tax bill and need a reliable funding partner, Secured Lending is a short-term lending solution you can rely on. Our team is ready to help you find the right credit facility to take control, clear your tax obligations, and move forward with confidence.

Picture of Gino Tabila

Gino Tabila

Associate Director - Secured Lending

Picture of Mark Hutchins

Mark Hutchins

Director - Secured Lending

Our team is here to help

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