Posted by Revive Financial on Apr 5, 2022 11:36:27 AM

Peer-to-peer small business lender Prospa recently announced an increase of 75 percent in the number of new loans it's processing - and they're not the only non-traditional lender to be paying out at an increasing rate.

We’ve been seeing a notable rise in business owners reaching out to unsecured lenders to access loans – whether to cover business shortfalls, including residual COVID-19 created debt, or in an attempt to grow and thrive in tough times.

One of the biggest debts many small businesses have right now is ATO debt, which isn’t unsurprising as, for many, it’s been mounting for the past couple of years.

Now that the ATO has restarted chasing what it’s owed with greater force, paying it off with unsecured business finance may seem like a smart solution for people still cash short. From our experience, it rarely is.

The Headache of ATO Debts

According to the Inspector General's analysis of ATO data, small businesses in Australia accounted for the majority of the overall ATO debt book at 62.9 percent or $21.4 billion. This includes tax debt, GST, and PAYG withholding.

As a small business owner, ATO debt can seem overwhelming, especially where large amounts are owing – something we see first-hand. This stress has only increased recently with the knowledge that the ATO now has increased powers to recoup tax and other debt.

Not only can the ATO fine you for non-payment, but their latest power allows them to disclose your debt to credit reporting bureaus (CRBs) – something that can negatively impact your credit rating for up to five years.

With this in mind, it’s understandable that alternative lending avenues might be sought to satisfy ATO debt and stay out of trouble.

Easy Money for Cash-short Businesses

According to the government's latest business conditions and sentiments release (February 2022), over one in ten small businesses (12%) have sought additional funds over the past three months.

If your business already has too much debt, is fresh to the market, or has minimal business assets, traditional lenders are often unwilling to take a risk. In addition, they can take a while to process loans. Enter unsecured lenders, such as Prospa.

These non-traditional lenders offer quick and easy to access financial assistance, with business loans of between $5k to $500k.

You don’t have to fill out multiple forms or jump through hoops. Only a few quick checks are made, such as the strength of your cash flow, and no asset security is required before the money is delivered – a big plus if you have imminent company bills or growing ATO debt to pay.

In addition, because these types of loans aren’t secured against assets, such as your home, vehicle, commercial property, or long-term assets, they’re not deemed as big a risk.

Why Say "No" to Lender Debt

While they may seem like a quick and easy cash fix, one you can promptly use to satisfy your ATO debts, unsecured loans can create more problems than they solve. These problems include:

  • Higher interest rates – Because the borrower is at higher risk, the interest rates are also higher. Interest rates on unsecured loans in Australia can range from five to 25 percent per annum or more. Prospa’s average annual percentage interest rate is 34.3 percent
  • Payment Default Consequences - Defaulting on a payment for an unsecured loan can lead to fines, debt collection, and even court action. While this is also true of the ATO, unsecured lenders can be much more difficult to deal with in negotiations meaning bankruptcy is more likely
  • Potentially shorter terms - Unsecured lenders might have shorter terms than you may be able to negotiate with the ATO. Therefore, your ongoing commitment will be higher, including additional cash flow pressure. This isn’t ideal if easing cash flow was the reason for seeking the loan in the first place.
  • Personal director liability for company debt - If you trade under a company, as a director, you’re protected from being personally liable for your company’s ATO debt unless you’re issued with a director penalty notice. All unsecured loans require the directors to sign personal guarantees. If your company can’t pay, you’ll have to find the money, potentially putting your house on the line.


While many unsecured lenders may seem like your friend in the beginning – they trust you enough to lend you money, after all – they’re not always so understanding if paying back the loan becomes a struggle. This is something we’ve experienced a lot recently when negotiating for our clients.

Bet Your Business on ATO Debt

Unlike most unsecured lenders, the ATO is much more willing to extend a friendly hand to debt – provided you keep them informed of your situation.

If you can’t pay your ATO debt right now and it’s keeping you up at night, tell them this while making sure you still meet your reporting deadlines. They’re committed to listening to your situation and helping you manage your debt.

If your business has ATO debts of $100,000 or less, you may be able to easily set up an ATO payment plan online based on how much you can afford to pay.

If you owe activity statement amounts, you may also be able to pay these off interest-free over a period of 12 months.

If an agreement can’t be reached for a payment plan, the ATO may be able to offer you a secured payment plan. This means they may accept an offer of security where you either request to defer the payment or seek to pay in instalments.

Having a payment plan in place to manage your ATO debt can help you avoid being served a letter of disclosure – and getting a black mark on your business. It can also ease the mental load and make your debts manageable.

Plus, an ATO debt payment plan can protect you from other serious actions such as garnishee notices, director penalty notices, or worse case, wind-up action.

Pick the ATO for Better Outcomes

In our experience, converting any kind of unmanageable debt, including ATO debt, into an unsecured loan is simply a band-aid measure for cash flow, which ultimately ends up in tears.

While the ATO may seem like a big, foreboding institution, they’re actually a much better option when it comes to dealing with unmanageable tax debt. So just say no to that fast unsecured loan, no matter how tempting and friendly it seems.

If you’re struggling to get an affordable ATO payment plan, then it may be worth considering if your next best option is a business restructure to reduce your ATO debt to a manageable level. We’ve achieved some great recent outcomes for clients, reducing their business ATO debts by as much as 75 percent.

Does your small business have significant ATO debt? Or have you taken out a loan with a non-traditional lender and are struggling to make repayments. Get in touch with our team of specialists today on 1800 560 557 for professional, non-judgemental support and advice.

Topics: Tax Debt, ATO payment plans, credit score, Business Advice, Debt Management, ATo debt, tax debt loans, unsecured loans, Prospa

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