Business loans you can compare today
How does a business loan work?
Business loans can be secured or unsecured and come as a line of credit or a lump sum payment. Banks tend to require collateral as security for business loans, but you can find some that don’t. Non-bank lenders, including those on this page, typically don’t need security for a standard business loan and usually offer terms between six months and three years. These may vary, so please check out the individual lender’s website. Costs can differ, and repayments are made daily, weekly or monthly depending on the lender you select. However, the lender usually arranges payment in line with your business’ cash flow.
Depending on what you borrow the money for, how you need to repay and which lender you borrow from, the way the loans work varies, so make sure you compare the options.
Quick guide to business loans
Are you eligible for a business loan? How do business loan applications receive approval? Why are applications rejected? We take you through your business loan application to help you get it across the line.
Is your business eligible for a loan?
- Age of the business. You usually need to have been operating for at least one year for most unsecured business loans on offer from alternative lenders and banks, but some may offer unsecured startup finance. Invoice factoring and equipment loans have less stringent criteria for business age, but you also need to have been operating for at least one year for business overdrafts or a line of credit.
- Turnover. Your business may need to be making a specific amount of turnover to be eligible for a loan. This revenue may be monthly or yearly and can range from $50,000 p.a. to $200,000+. Other lenders require you to connect your business’ accounting software or financials as part of the application process, so it can calculate a loan your business can afford.
- Credit profile. The lender may check the personal credit histories of the directors, along with the company’s credit (unless you’re a startup). If the business has unpaid defaults or tax debt you may need to find a bad credit business loan.
- NZBN. You’ll need to have a New Zealand Business Number (NZBN).
What are the business finance options available?
Lenders split business finance into two main categories: debt finance and equity finance. An owner or external investor provide equity finance, whereas banks, credit unions or a business lender provide debt finance. Below, you can find out more information about the different types of short-term and long-term debt finance available.
Business overdrafts are attached to your business banking account and allow you to overdraw up to a specified limit on that account. You only pay interest on the outstanding balance.
- A pre-determined limit that you can overdraw up to on your business bank account
- Suitable to manage day-to-day cash flow fluctuations in a business
- Usually comes with an application fee, line or facility fees, and you pay the interest monthly when you use the overdraft funds
A business line of credit
You have a set limit and can use up to and including that limit as and when you need to. Repayments are flexible as long as you keep the account in good standing.
- Draw on an account balance up to an approved limit
- A line of credit can be secured or unsecured, and more non-traditional lenders are starting to offer them
- Lenders usually charge interest monthly, and repayments include the interest plus fees
Short-term business loan
You receive approval for a specific amount of funds which you repay over a set term, which is usually between three and 12 months.
- Repay what you owe quickly
- Repayments are usually daily or weekly to mitigate the impact on a business’ cash flow
- Lenders may charge interest on the principal or the outstanding amount, depending on the lender, and fees may apply
A business credit card works just like a personal credit card, except for the business expenses. Plus, you can add multiple additional cardholders.
- Opt for a personal or business credit card to fund the immediate cash flow needs of your business
- Benefit from interest-free days, rewards and additional cardholders
- Interest can usually range from 15-23% if you do not repay the balance monthly
Cash flow lending
This type of credit allows you to use your expected cash flow as collateral for the loan.
- Use your working capital assets as security for a loan
- Drawdown on funds as required, with your cash flow determining your loan amount
- Lenders charge interest on the outstanding balance, and fees may apply
If you have overdue invoices and need them to be paid, you can sell them to an invoice financing company and receive what you’re owed, minus a fee.
- Use your outstanding invoices as finance
- Receive up to approximately 80% of the invoice amount and choose which invoices you want to finance
- You need to pay a percentage of the invoice amount
This type of finance allows you to fund the purchase of goods from domestic or international suppliers.
- Various types are available, such as letters of credit or bank guarantees between the buyer and seller
- Fill large orders without putting a stop to your cash flow
- The lender charges interest on the amount provided for each trade as well as fees
Business vehicle finance
Vehicle finance is a secured loan available for businesses of all sizes, with leases also available.
- Various types are available to sole traders, small and medium-sized businesses
- Depending on the cost of the car and how you use it, there are tax benefits available
- Repayment terms vary depending on the type of finance you select, but competitive rates are on offer if the loan is secured
There are various options available to let you purchase or lease equipment.
- Options include commercial loans, equipment hire purchases, finance leases and novated leases
- You have the choice to purchase or lease, depending on your business needs
- Compare the costs and rates to select the right finance option for the equipment you require
How do lenders judge your business loan application?
Lenders use a variety of criteria to see if you fit their risk profile and to ensure your business can repay the loan.
- Age and turnover of the business. Startup finance is harder to find and receive approval for, so if it is an established business, you will find it easier to be eligible for a loan. The provider also considers the business turnover, and it usually has a minimum requirement for the monthly or annual turnover or uses your turnover to determine what the business can afford to repay.
- Credit profile. The lender assesses the director’s credit scores as part of the application process. If the business is established, so is the company’s credit score.
- Credit card volume. If you receive credit card payments in your business, lenders may use the amount of these payments to judge your ability to repay the loan. The assumption among some new lenders is that you will primarily use this volume to repay the loan.
- Accounts receivable. Similar to credit card volume, lenders may factor your accounts receivable value into their asset ratios to help them make a decision.
- Company structure. Lenders check your company’s structure and how long you have had this existing structure. If you have recently undertaken a restructure or are applying for finance in the middle of restructuring, lenders may not want to finance you at this time.
- Existing debt. Does your business have an existing debt with another lender? The loan provider considers this as part of your application.
- Profitability. For a revolving line of credit, your business usually needs to be profitable to receive approval.
Common mistakes that mean rejection for your application
- Frequent changes to your company structure. One way lenders judge your business is to see how long you’ve had your current format. If you’re applying for finance when you’re undergoing a restructure, or if you’ve been through multiple restructures, this could be a red flag.
- Not having a clear loan purpose. If you don’t have a clearly defined plan for the funds you’re applying for, lenders are hesitant to lend to you, even if your financials show you can repay the loan. Have cash flow projections that incorporate the credit you’re applying for and demonstrate how you will use and repay it.
- Asking for too much. Lenders use the information you provide in your application, including business details and account information, to work out how much you can comfortably afford to borrow. If you ask for too much at the onset, the lender may reject the loan rather than offer you a lower amount. However, asking for too little may mean you need to borrow again soon. Work out how much you can comfortably afford, so you have the best chance of gaining approval.
- Being impatient. Each lender has a different approval process for business loans and the first lender you approach may not necessarily close the deal for you. You are entitled to ask your lender how long the process will take, but consider that it may take longer than you first thought. Take the time to complete the paperwork correctly because the provider will use it to determine whether to approve you for a loan or not.
- Relying on your cash flow. Lenders look at things other than cash flow, such as how long the business has been in operation, the financial situation of the directors and the reason for the loan. Remember to give as much detail as possible to help your application.
How can you compare business loans?
- Do you meet the eligibility criteria? Checking you meet the minimum eligibility criteria before you apply is the first step in your comparison process, as this helps narrow down the most suitable choices.
- How much will the business loan cost? If you know what loan you need, the next step is deciding what your company can afford. Look at your incomings and outgoings to see what you can comfortably repay without putting too much strain on the business. If the loan is for a startup, you need to rely on cash flow projections.
- Do the repayment terms meet your business’ needs? Lenders offer repayment terms of varying flexibility. Some allow you to repay daily, others weekly and some require you to repay the loan monthly. Work out which best meets your business’ needs regarding cash flow.
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