Most small businesses carry some form of debt — equipment finance, overdraft, credit cards, or an ATO liability from a slow BAS quarter. The issue isn't having debt; it's not managing it proactively.
Start by listing every debt: the amount owed, interest rate, minimum repayment, and due date. Prioritise by cost: high-interest debts (credit cards at 15-22%, unsecured loans) should be paid down before low-interest ones (equipment finance at 5-8%, ATO payment plans at the general interest charge rate).
If you owe the ATO and can't pay in full by the due date, contact them immediately to arrange a payment plan. The ATO is generally willing to negotiate manageable instalments — but only if you initiate contact before the due date. Once a debt goes to collections, your options narrow. The General Interest Charge (GIC) applies to overdue amounts at roughly 11% per annum (updated quarterly), which is still cheaper than most unsecured business lending.
Consider refinancing: consolidating multiple high-interest debts into a single lower-rate facility can reduce total interest cost and simplify cash flow. Talk to your bank or a finance broker about options. For sole traders, your personal credit history directly affects business lending — keep personal debts manageable too.