Compare business loans

We can help you power your small or medium-sized business by comparing business loans from trusted New Zealand lenders. Whether you’re interested in a secured or unsecured loan, need to finance a business vehicle purchase, or want to know more about peer-to-peer lending options, we can help.

How does a business loan work?

Businesses can either be lent a lump-sum payment or a revolving line of credit, which is repaid, with interest, over an agreed term (generally anywhere from three months to five years).

Business loans are traditionally in the form of secured or unsecured loans and allow businesses to borrow from $2,000 to $1,000,000, though some lenders do not have limits on their borrowing amounts. Most business loans come with a fixed interest rate and you will need to make repayments on a daily, weekly or monthly basis. There’s also third option, peer-to-peer lending, which is becoming a growing market in New Zealand.

Three types of business loans

1. Secured business loan.You will need to use an asset, generally a residential or commercial property, as security against the loan. In return, you will generally receive a lower interest rate, have the ability to borrow a larger amount and are more likely to be approved by the lender. Some lenders do not have a limit on the funds that you can borrow with a secured business loan. The amount that you qualify for will instead be determined by your asset value.
2. Unsecured business loan.You do not need to use an asset as security on an unsecured loan. As an unsecured loan represents more of a risk to the lender, you will generally be offered a higher interest rate and may be less likely to be approved for a loan, depending on the strength of your application. Unsecured loans can be beneficial for business owners who do not own an asset of value, or would prefer not to risk their personal or company property.
3. Peer-to-peer (P2P) business loan. This is a comparatively new type of loan offering whereby new or established businesses can apply for funding from a single investor or pool of investors. The advantages of P2P business loans is that they’re easily applied for online, the interest rates are often lower than banks and the repayment terms can be more flexible. Peer-to-peer lenders in New Zealand includeLending Crowd, Squirrel Money and Zagga.

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.

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 overdraft

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

Credit card

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

Invoice financing

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

Trade finance

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

Equipment finance

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.