Banks in Aotearoa New Zealand are increasingly unwilling to lend to businesses that have debt with Inland Revenue (IRD), even when a payment arrangement is in place.
IRD debt creates heightened risk that banks won’t tolerate. This is due to current climate of aggressive tax debt enforcement. As at 31 March 2025, NZ is $9.3billion behind in it’s payments to IRD. There are record levels of liquidations – 134 in the first quarter of this year, up 68% on the previous year. There is significant government funding aimed directly at tax compliance and debt recovery. For more information, see here.
Why banks avoid lending to businesses with IRD debt
It’s a big red flag for lenders: IRD debt is viewed as an immediate red flag for most lenders in New Zealand. Many banks and even some alternative lenders will decline applications from businesses with unresolved IRD arrears or will require that the IRD debt is repaid before they will lend, even if a payment plan is in place. Here’s why –
Risk perception - arrears with IRD are seen as an indicator of financial stress or poor management, signaling to banks that a business may struggle to meet further debt obligations. This increases the perceived risk, especially for unsecured business loans.
Liquidation threat - As IRD becomes more assertive in recovering debts, banks fear that a business with tax arrears is vulnerable to the IRD swooping in and appointing the Official Assignee as a liquidator. All of a sudden, there’s no revenue to pay your bank debt, and any money the OA recovers will go to IRD, not the bank.
They think you’re managing your business poorly - Not paying tax could indicate to a bank that you are failing to manage your business prudently. If your tax is behind, they may feel that your financial accounts are unreliable too. Remember, banks can get a good gauge from your bank activity how disciplined you are with your business’s money.
How do you stay on top of your taxes and keep the Official Assignee from visiting?
First, if you have debt, contact IRD. Seriously. They love it when you contact them and offer them a payment arrangement. This takes the heat off you, and onto someone else who is burying their head in the sand.
Second, put in place some procedures that help you to stay on top of things, such as:
Lining up your tax arrears repayment with when your bank account has the most money in it
Arrange an overdraft as a safety net, to avoid any bounced payments to IRD or other lenders – because reversed payments prevent you from getting future borrowing, even with second-tier finance companies
Sweep GST into a savings account when you receive payments or have banked cash sales
Keep on top of PAYE by paying it when you submit your PAYE return
Put money aside for provisional and income tax whenever you can
If you have tax arrears and want to get business funding, here are a few key points:
You need to be transparent with your lender – show them your payment arrangement documentation and be open about any payments you’ve missed
Most lenders will treat your IRD debt like any other loan, when calculating how much they will lend you.
As tax debt is a risk factor, be prepared to pay a higher interest rate; which on top of other factors like poor credit can mean paying quite high rates.
tax debt: the bottom line
It’s not impossible to get business loans and funding when you have IRD arrears … just don’t expect your bank to be on board, even if you have existing business with them such as a home loan (with good equity). If you have arrears, get a payment arrangement in place and show good discipline in your bank accounts before applying for finance. And contact us to talk about your finance needs – every funder has different products and application criteria so we can easily find a funder that will suit you and your business.