Quick answer
In business lending, consolidation usually means rolling several debts into one new loan with a single repayment. The word has two other meanings an owner will meet: consolidated financial statements, which combine a parent company and its subsidiaries into one set of accounts, and tax consolidation, where the ATO treats a wholly-owned group of companies as one taxpayer. Lenders use all three, so context matters.
Key points
- Debt consolidation combines several loans into one, usually to simplify or lengthen repayments
- Consolidated accounts show a group of entities as if it were one business
- Tax consolidation lets a head company and its wholly-owned subsidiaries be taxed as one entity
- Lenders often assess the whole group, not just the borrowing entity
Three people can use “consolidation” in the same meeting and mean three different things. The broker means merging your debts. The accountant means rolling up the group’s books. The tax adviser means a particular ATO election. Knowing which one is on the table saves a lot of crossed wires.
Meaning 1: consolidating debt
This is the everyday lending sense. Several existing debts, such as a short-term online loan, an equipment loan, a credit card balance and an ATO debt, are paid out by one new facility. The business is left with one lender, one repayment date and, ideally, a cost it can manage.
The aims are usually to:
- cut the number of daily or weekly debits hitting the account;
- stretch repayments over a longer term to ease cash flow;
- swap expensive short-term money for cheaper, longer finance, often secured against property.
We cover this in more depth on the debt consolidation glossary entry and the debt consolidation loans page.
Worked example
A Hobart landscaping business has three debts: a $60k online loan with daily repayments, a $35k equipment loan and a $25k ATO debt. Combined repayments are around $9,800 a month. The owner refinances all three, plus fees, into a $125k loan secured against their home over five years, with repayments of roughly $2,600 a month.
Monthly cash flow improves by about $7,200. The catch: over five years the total paid may exceed what the original debts would have cost if they’d been cleared on schedule. That’s why the loan cost comparison calculator is worth running before signing anything. The figures above are illustrative only.
Juggling several repayments right now? You can send us a quick enquiry and we’ll look at whether one loan would help.
Meaning 2: consolidated financial statements
Plenty of Australian businesses run through more than one entity: an operating company, a family trust holding the plant and tools, another company that holds the property. Consolidated accounts combine the parent and the entities it controls into one balance sheet and one profit and loss, removing loans and sales between them so nothing is counted twice.
Lenders care because a single entity’s accounts can flatter the picture. A trading company might look debt-free while the related trust carries a large loan the company has guaranteed. Expect a lender to ask for a group structure chart and either consolidated or combined statements, and to want guarantees from related entities. That ties in closely with cross-collateralisation, where security over several assets backs several loans.
Meaning 3: tax consolidation
Under Australian income tax law, a head company and its wholly-owned resident subsidiaries can choose to form a consolidated group. The ATO then treats the group as one taxpayer: transactions inside the group are ignored for income tax, and one return is lodged. The choice is optional, but once made it is irrevocable.
For lending, the main effect is practical. The group’s tax return covers several companies, so a lender may need management accounts by entity to see where income is really earned.
Ready to simplify what you owe?
If the first meaning is the one keeping you up at night, we can help. It’s about a minute to fill in our enquiry form, and your credit file is left alone while you do it. We don’t shop your details around to every lender in the market. Instead a member of our team works through your list of debts and rings you to talk about whether consolidating makes sense. Please list each debt accurately, with balances and repayments, which lets us open the conversation with something genuinely workable.
Frequently asked questions
Does consolidating business debt always save money?
No. A longer term can lower each repayment but increase the total interest paid over the life of the loan. Compare the total dollar cost of the existing debts with the new loan, including fees and any break costs.
Why does a lender want consolidated accounts?
Money and guarantees often flow between related companies and trusts. Consolidated or combined figures stop a lender from looking at one healthy entity while debts sit elsewhere in the group.
What is a tax consolidated group?
It is a head company and its wholly-owned Australian resident subsidiaries that have chosen to be treated as a single entity for income tax. The choice is optional, but once made it can't be reversed.
Can I consolidate ATO debt with other business debt?
Often, yes. Many lenders will refinance a tax debt along with other liabilities, although some want a payment plan in place or the debt paid at settlement.
Is consolidation the same as refinancing?
Refinancing replaces one loan with another. Consolidation replaces several with one. A consolidation is therefore a kind of refinance with more than one debt being paid out.