A loan to pay IRD debt: when it makes sense, and when it doesn't

Plenty of sound New Zealand businesses end up owing Inland Revenue. A big customer pays late, a provisional tax bill lands bigger than expected, or GST collected on sales gets spent on wages to keep the doors open. None of that makes you a bad operator. It does mean the clock is running, because IRD adds penalties and interest while the balance sits there and its collection steps get firmer the longer it goes.

A loan to pay IRD debt is one way to stop that clock. This page explains how it works, what a private lender like us looks at, and when you would be better off with a different route.

How does a loan clear IRD debt?

The idea is simple. A lender advances funds, the funds go to Inland Revenue (often paid directly at settlement), and the tax account is cleared. You now owe the lender instead of IRD, on agreed terms with a fixed end point.

That swap changes three things:

• The balance stops growing on IRD’s side. Once the tax is paid, there is nothing left for late payment penalties or use-of-money interest (UOMI) to attach to. IRD calculates UOMI daily on unpaid tax, so every week of delay adds to the bill (IRD, UOMI).
• Enforcement stops. Deduction notices, statutory demands, credit reporting and liquidation applications all rest on there being an unpaid debt. Clear the debt and the process has nothing to run on.
• You get certainty. A loan has a known term and a planned exit, such as refinancing to a bank once your tax record is clean, selling an asset, or repaying from trading.

The trade-off is that a loan has its own cost, and if it is secured, the lender takes security over property. That is why we spend the first call on whether borrowing actually leaves you better off.

What do lenders look at when you owe IRD?

Banks often step back once tax arrears appear. Private lenders take a wider view. When we look at an enquiry from a business that owes IRD, the questions are practical:

What we look at	Why it matters
Property equity (residential or commercial)	Security allows larger amounts, from $20,000 to $5,000,000, and faster decisions
Trading income and bank statements	Unsecured and cash-flow options, typically $5,000 to $500,000, are sized on turnover
How the debt arose	A one-off shock is different from a business that can’t cover its own GST
Returns filed and up to date	Unfiled returns mean the true balance is unknown
Letters received	A statutory demand or liquidation application sets a hard deadline
The exit	How the loan will be repaid or refinanced at the end of its term

Bad credit and existing IRD debt are considered case by case. A past default doesn’t rule you out, but hiding it slows everything down, so the more accurate your enquiry, the faster we can tell you where you stand.

If you want a quick read on your position before you talk to anyone, our IRD debt options checker gives you a ranked plan in a couple of minutes.

When is borrowing the right call?

A loan usually makes sense when most of these are true:

1. The business is viable. It earns enough to cover its own costs, including new tax as it falls due, once the old debt is dealt with.
2. The debt is causing damage now. Penalties and interest are compounding the stress, a deduction notice has hit your account, or a statutory demand has started a 15 working day clock.
3. An instalment arrangement isn’t available or isn’t enough. IRD has declined a plan, wants more than you can show, or a previous arrangement broke down. See why IRD declines payment plans.
4. There is a clear way out of the loan. Property equity, a sale, a refinance, or trading cash flow.

Interestingly, IRD itself asks companies applying for relief or instalment support whether they have tried getting a loan to pay the debt (IRD). Looking into funding is part of handling tax debt properly, not a way around the system.

Ready to see whether funding fits? Start a confidential 60-second enquiry. There’s no credit check at this stage, and a real person reads it.

When is a loan the wrong answer?

We would rather tell you this upfront than lend money that makes things worse. A loan is usually the wrong tool when:

• the business is losing money month to month and has no realistic path back to profit;
• new GST or PAYE isn’t being paid as it falls due, so the debt would simply rebuild;
• there is no way to repay or refinance the loan at the end of its term; or
• the amount owed is small enough that an instalment arrangement would clear it within a few months at lower total cost.

If the business can’t continue, the right person to talk to is your accountant or a licensed insolvency practitioner, and we’ll say so. Our page on how to check an adviser explains what to ask.

An illustrative example

Illustrative only. Not a real client and not an offer.

A Waikato engineering company owes IRD about $180,000 across GST and an income tax reassessment. Penalties and UOMI make up a noticeable slice of that. IRD has issued a deduction notice to the company’s bank and the directors are worried about credit reporting, because the balance is over $150,000 and well past 90 days. The directors own a commercial unit with solid equity.

A property-secured loan is used to pay IRD in full at settlement. The deduction notice falls away because there is no debt left, the credit-reporting risk disappears, and the company has 12 months of breathing room to tidy its books before refinancing to a bank. The directors know the total cost of the loan upfront and can compare it in dollars against the arrangement IRD had already declined.

What do you need to get started?

Before you enquire, it helps to have:

• your myIR statement of account (tax, penalties and interest by period);
• copies of any IRD letters, especially a statutory demand, deduction notice or Notice of Intent;
• recent business bank statements;
• details of any property you could offer as security; and
• a rough idea of whether returns are up to date.

You don’t need all of this to make an enquiry. It just makes the first conversation more useful.

Could funding clear your IRD debt?

If you’re carrying IRD debt and want a straight answer about whether a loan would help, tell us about your situation. It takes about a minute. There’s no credit check when you first enquire, your details aren’t passed to a list of other lenders, and a person who understands IRD’s process calls you back. Please answer the questions as accurately as you can, particularly the amount owed and any letters you’ve received, so the first call can be about real options rather than guesswork.