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Small Business Loans - The Definitive New Zealand Guide

Our guide covers the different types of small business loans available throughout New Zealand, the eligibility requirements and application process, tips on how to successfully secure a loan, the pros, cons and risks of taking of taking on debt, must-know facts and frequently asked questions.
Updated 10 May 2023
Summary:
  • ​With high interest rates and the high cost of living putting severe pressure on the New Zealand economy, many small businesses are hanging in limbo, uncertain how stable domestic demand will be in the coming years.
  • In the short term, thousands of New Zealand small businesses are considering loans and financing options to keep the lights on and ride out the tough few years to come. We've seen a tremendous increase in search volume in 'business loan' related terms since mid 2022.
  • To help explain what the options are, we've published this guide to make sense of what is, for many business owners, unfamiliar territory.
  • Know This: Small business loans have unique risks but they are a proven option specifically designed for small business owners to help them fund operational needs, expand into new products or alleviate short-term cash flow issues. What is right for your business takes careful research and your options and understanding the terms and conditions of the loan, you can find the financing solution that best meets the needs of your small business.
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Our guide covers:
Useful resources:

What is a Small Business Loan?

​Small business loans are financial products specifically designed for small business owners to help them fund their operations, expansion, or any other business-related expenses. Several options are available for small business owners seeking a loan, including traditional bank loans, alternative lending platforms, specialist business lenders, government-backed programs, and more.

What types of small business loans exist to help businesses in New Zealand?

​There are multiple types of small business loans available in New Zealand:

Secured loans

Secured loans are backed by collateral, such as equipment, real estate, or other assets. If the business cannot make its loan payments, the lender may seize the collateral to recover its money.
​
Examples of secured small business loans in New Zealand include:
  • Equipment financing loans: These loans are used to finance equipment purchases, and the equipment is used as collateral for the loan.
  • Commercial mortgages: These loans are used to finance the purchase or refinance of commercial real estate, and the property itself is used as collateral for the loan.

More details: Our guide to comparing business loans lists many lenders who offer secured loans.

Unsecured loans

Unsecured loans don't require collateral, and the lender relies on the business's creditworthiness to secure the loan.

​Examples of unsecured small business loans in New Zealand include:

More details: Our guide to comparing business loans lists many lenders who offer unsecured loans.

Personal (term) loans

These loans provide a lump sum of money repaid over a set period, typically with fixed monthly payments.

More details: Our guide to personal loans lists lenders who work with business owners needing short-term financing.

Revolving line of credit

These loans provide a pool of money that the business can draw from as needed, and the business is only required to pay down interest on the amount it borrows.

Invoice financing

These loans allow businesses to borrow against their outstanding invoices, with the invoices themselves serving as collateral for the loan.
Is Your Small Business Looking for a Loan?
  • Avoid high-interest rates and high fees with our top three trusted business lenders.
  • Our business loan research highlighted three leading business lenders that undercut the established competition with fairer interest rates and fees to qualifying business borrowers and a genuine willingness to lend.
  • We suggest contacting Prospa, Bizcap and Lending Crowd (in that order) to see what interest rate they will offer.
  • Applying takes only a few minutes for each site. There is no obligation to accept any loan offer. However, be aware that the advertised interest rate is not guaranteed, and your credit score may, in some cases, be affected if you routinely apply for loans.
  • The more you compare and enquire (without paying any application fee), the better your chances of finding the best deal. Not all business loans are affordable - make sure you know your options by comparing the market widely.
  • Remember, the interest rate you agree to now makes a huge difference when you repay the loan week after week.
  • Advertising Disclosure: We may receive a commission if you take out a loan, but this does not influence our shortlist or comparison data. Interest rates vary based on each borrower, and assessment times vary.
Our Top Business Loans Providers:

Why Would I Want to Apply for a Small Business Loan?

​There are multiple reasons a small business throughout New Zealand might want to apply for a small business loan. Some common reasons include:

To finance the expansion of the business

A small business loan can provide the money needed to purchase additional equipment, expand into new markets, or hire more staff. Without a small business loan to fund this expansion, businesses may not be able to grow as fast as they would ideally like to, meaning other competitors can grow faster and steal market share.

To cover operating costs

A small business loan can help a business meet its day-to-day operating expenses, such as rent, utilities, and payroll. However, note that small business loans are usually short-term fixes to long-term problems, and a small business loan isn't the final solution to a problem. Instead, they can be the beginning of the end - fixing the underlying issues (lack of sales, uncontrolled costs etc) is essential to continue as a going concern.

To improve cash flow

A small business loan can provide a business with the cash it needs to cover short-term expenses while it waits for customer payments or other sources of income. Sometimes, businesses may be profitable but experience unfavourable timing regarding when invoices are sent and when money is paid.

Small business loans can bridge this gap and ensure that businesses can pay their staff and suppliers or purchase new equipment on time. Our guide to getting debtors to pay overdue invoices has scripts and tips to speed up cash collection.

To finance a special project

A small business loan can be used to fund a one-time project, including developing a new product or starting a marketing campaign. However, careful budgeting and a well-tested ROI analysis is essential to ensure the money borrowed is spent in the right places.

To take advantage of a business opportunity

A small business loan can provide the money needed to take advantage of a business opportunity that may not have been possible without additional financing.

Which Businesses are Eligible for Small Business Loans?

The terminology for what defines a "small business" varies by lender. However, in New Zealand, small businesses are typically defined as those with fewer than 20 full-time employees. However, the eligibility criteria for small business loans can vary depending on the lender and the type of loan product.

While the approval of small business loans will be subject to each credit provider’s unique criteria, generally, small businesses that apply for a small business loan will be vetted against the following criteria:
  • The business is a registered company or sole trader operating in New Zealand.
  • The business has been in operation for at least one year, although some lenders may consider businesses that have been operating for a shorter period.
  • The business has a good credit history and can demonstrate the ability to pay back the loan.
  • The business has a viable business plan and can demonstrate the potential for growth and profitability.
  • The business has sufficient collateral to secure the loan if required. This may be in the form of a personal guarantee from a director/business owner.

Important: Lenders may have additional eligibility criteria that must be met to qualify for a small business loan. Therefore, it's a good idea to speak with a lender to determine the specific eligibility requirements for the loan product you are interested in.

Useful resources:

How Can I Apply for a Small Business Loan? What's the Process?

​To apply for a small business loan in New Zealand, you’ll need to follow the following steps:

Determine your borrowing needs

Before you start the application process, it's important to determine how much you need to borrow and for what purpose. This analysis will help you choose the right loan product and lender. If you borrow too little, you may need to go back and pay a higher interest rate, whereas if you borrow too much and draw it down, you'll be paying interest which needs to be paid for my revenue.

Our View: Getting the numbers right upfront is a process which shouldn't be rushed - the consequences for inaccuracy are expensive.

Research your options

There are a variety of small business loans available in New Zealand, so it's important to research your options and choose a loan that meets your needs. Our guide to the best business loans is a helpful starting point. Consider factors such as interest rates, repayment terms, and fees when comparing loan products.

Gather the necessary documents

Most lenders will require you to provide certain documents as part of the loan application process. These may include financial statements, tax returns, business plans, and collateral. The faster you supply these documents the quicker a decision will be made about the loan.

Prepare a business plan

A business plan is a document that outlines your business goals, strategies, and financial projections. It can help you present a clear and compelling case to lenders about why you deserve a loan and how you plan to use the funds.

Useful business plan guides and templates are available from the government, Shopify and Xero.

Apply for the loan

Once you have gathered all the necessary documents and prepared a business plan, you can start the loan application process. This process typically involves filling out an application form and submitting it to the lender along with the required documents.

Wait for a response and reply to inquiries

After you submit your loan application, the lender will review it and decide whether to approve or deny your request. This process can take several weeks, so patience is important. If your application is approved, the lender will provide you with a loan agreement outlining the terms and conditions of the loan.
Is Your Small Business Looking for a Loan?
  • Avoid high-interest rates and high fees with our top three trusted business lenders.
  • Our business loan research highlighted three leading business lenders that undercut the established competition with fairer interest rates and fees to qualifying business borrowers and a genuine willingness to lend.
  • We suggest contacting Prospa, Bizcap and Lending Crowd (in that order) to see what interest rate they will offer.
  • Applying takes only a few minutes for each site. There is no obligation to accept any loan offer. However, be aware that the advertised interest rate is not guaranteed, and your credit score may, in some cases, be affected if you routinely apply for loans.
  • The more you compare and enquire (without paying any application fee), the better your chances of finding the best deal. Not all business loans are affordable - make sure you know your options by comparing the market widely.
  • Remember, the interest rate you agree to now makes a huge difference when you repay the loan week after week.
  • Advertising Disclosure: We may receive a commission if you take out a loan, but this does not influence our shortlist or comparison data. Interest rates vary based on each borrower, and assessment times vary.
Our Top Business Loans Providers:

What Types of Small Business Loans are Available in New Zealand and Who are the Main Providers?

Know This First: Lenders will either offer secured loans or unsecured loans. Both have significant risks.
  • Secured loans typically charge lower interest rates but carry a higher risk of losing your collateral if you default on the loan.
  • Unsecured loans have higher interest rates but do not require collateral.
  • However, to take out a loan, you may be asked to sign a personal guarantee which means you'll be liable if the business fails to repay the loan.

There are many different types of small business loans available in New Zealand, including:
  • ​Bank loans: Bank loans are the most common type of small business loans offered by traditional banks and financial institutions. Bank loans can be secured (meaning you need to provide collateral, such as assets or property) or unsecured (meaning you don't need to provide collateral).
  • Alternative lending platforms: These are online platforms that connect small business owners with lenders, including banks, alternative lenders, and investors. Alternative lending platforms offer a range of loan products, including short-term loans, invoice financing, and crowdfunding. Examples of alternative lending platforms include Bizcap, Lending Crowd, Harmoney and Prospa.
  • Government-backed loans: The New Zealand government offers several loan programs for small businesses, including the Small Business Cashflow Loan Scheme and the Regional Business Partner Network. These loans are typically offered at lower interest rates and have more flexible repayment terms than traditional bank loans.
​Some of the most popular examples of small business loan providers include:

The New Zealand Government

The New Zealand Government provides small business loans through the COVID-19 small business cash flow loan scheme. The New Zealand Government has set up an online eligibility tool that you can use to identify whether you’re eligible for the COVID-19 small business cash flow loan scheme. The Small business cash flow loan scheme (SBCS) supports organisations and small to medium businesses affected by COVID-19 and has been extended until 31 December 2023.

If your business has 50 or fewer full-time equivalent staff, you may be eligible to receive a one-off loan. The maximum amount loaned is $10,000 plus $1,800 per full-time-equivalent employee. The annual interest rate will be 3% beginning from the date of the loan being provided. Interest will not be charged if the loan is fully paid back within two years.

Website: The New Zealand Government 

Traditional banks (Tier 1 banks)

​Tier 1 banks (such as Westpac, ASB, ANZ and BNZ) have dedicated small business banking teams that support New Zealand companies with banking, loan and other financial products. 

If you have an existing business relationship with a bank, this is most likely to be the best starting point.

Heartland Bank (Tier 2 banks)

Heartland Bank is a New Zealand-based lender that offers small business loans to eligible borrowers. Heartland's small business loans are secured or unsecured, depending on the specific loan product chosen.

Heartland's small business loans have a minimum loan amount of $5,000 and a maximum loan amount that varies depending on the loan product. The interest rate and terms of the loan will depend on the borrower's creditworthiness and the specific loan product chosen.

Heartland's small business loans are available to businesses operating for at least six months and have a minimum annual revenue of $50,000. Businesses must also have a good credit score and a reasonable debt-to-income ratio.

Our View: Heartland's small business loans may be a good option for New Zealand businesses looking for a secured or unsecured financing solution. However, it's important to carefully consider the terms and conditions of any small business loan before accepting it, as the loan will significantly impact the business's financial situation.

Website: Heartland Bank

Prospa (Specialist Business Lender)

Prospa is an Australian-based online lender that offers small business loans to eligible borrowers in New Zealand. Prospa's small business loans are unsecured, so they do not require collateral.

Prospa's small business loans have a minimum loan amount of $5,000 and a maximum loan of $250,000. The interest rate and terms of the loan will depend on the borrower's creditworthiness and the specific loan product chosen.

Prospa's small business loans are available to businesses operating for at least six months and have a minimum annual revenue of $50,000. Businesses must also have a good credit score and a reasonable debt-to-income ratio.

Our View: Prospa's small business loans may be a good option for New Zealand businesses looking for a flexible, unsecured financing solution. However, it is important to carefully consider the terms and conditions of any small business loan before accepting it, as the loan will significantly impact the business's financial situation.

Website: Prospa

MTF finance (Finance companies)

MTF Finance is a New Zealand-based lender that offers small business loans to eligible borrowers. MTF Finance's small business loans are secured, which means they are backed by collateral, such as equipment, real estate, or other assets. If the business is unable to make its loan payments, the lender may be able to seize the collateral to recover its money.

MTF Finance's small business loans have a minimum loan amount of $5,000 and a maximum loan of $500,000. The interest rate and terms of the loan will depend on the borrower's creditworthiness and the specific loan product chosen.

MTF Finance's small business loan products include:
  • Equipment financing loans: These loans are used to finance an equipment purchase, and the equipment is used as collateral for the loan.
  • Commercial mortgages: These loans are used to finance the purchase or refinance of commercial real estate, and the property itself is used as collateral for the loan.

MTF Finance's small business loans are available to businesses operating for at least six months and have a minimum annual revenue of $50,000. Businesses must also have a good credit score and a reasonable debt-to-income ratio.

Overall, MTF Finance's small business loans may be a good option for New Zealand businesses looking for a secured financing solution and are willing to pledge collateral in exchange for a loan. However, it is important to carefully consider the terms and conditions of any small business loan before accepting it, as the loan will significantly impact the business's financial situation.

Website: MTF Finance

Harmoney

Harmoney is a New Zealand-based online lender that offers small business loans to eligible borrowers. Harmoney's small business loans are unsecured, so they do not require collateral.

Harmoney's small business loans have a minimum loan amount of $5,000 and a maximum loan of $500,000. The interest rate and terms of the loan will depend on the borrower's creditworthiness and the specific loan product chosen.

Harmoney's small business loan products include:
  • Term loans: These loans provide a lump sum of money repaid over a set period, typically with fixed monthly payments.
  • Line of credit loans: These loans provide a pool of money that the business can draw from as needed, and the business is only required to pay interest on the amount it borrows.
  • Invoice financing: These loans allow businesses to borrow against their outstanding invoices, with the invoices themselves serving as collateral for the loan.

Harmoney's small business loans are available to businesses operating for at least six months and have a minimum annual revenue of $50,000. Businesses must also have a good credit score and a reasonable debt-to-income ratio.
​
Overall, Harmoney's small business loans may be a good option for New Zealand businesses looking for a flexible, unsecured financing solution. However, it is important to carefully consider the terms and conditions of any small business loan before accepting it, as the loan will significantly impact the business's financial situation.

Website: Harmoney
Is Your Small Business Looking for a Loan?
  • Avoid high-interest rates and high fees with our top three trusted business lenders.
  • Our business loan research highlighted three leading business lenders that undercut the established competition with fairer interest rates and fees to qualifying business borrowers and a genuine willingness to lend.
  • We suggest contacting Prospa, Bizcap and Lending Crowd (in that order) to see what interest rate they will offer.
  • Applying takes only a few minutes for each site. There is no obligation to accept any loan offer. However, be aware that the advertised interest rate is not guaranteed, and your credit score may, in some cases, be affected if you routinely apply for loans.
  • The more you compare and enquire (without paying any application fee), the better your chances of finding the best deal. Not all business loans are affordable - make sure you know your options by comparing the market widely.
  • Remember, the interest rate you agree to now makes a huge difference when you repay the loan week after week.
  • Advertising Disclosure: We may receive a commission if you take out a loan, but this does not influence our shortlist or comparison data. Interest rates vary based on each borrower, and assessment times vary.
Our Top Business Loans Providers:

What are the Pros and Cons of Taking on a Small Business Loan?

Pros:

Access to capital (that you otherwise wouldn’t be able to get).

A small business loan can provide the necessary financial resources to grow a business. Getting a small business loan can be especially helpful if the business does not have enough capital or cannot secure funding through other means, such as investors or grants.

Flexibility around funding.

Small business loans come in various forms, including term loans, line of credit loans, and equipment financing loans. Businesses can choose the type of loan that best meets their needs and financial situation.

Potential for increased growth (inorganic).

By using a small business loan to invest in things like marketing, new equipment, or additional staff, a business may be able to expand and grow more quickly than it otherwise would have been able to. This type of growth is defined as inorganic growth because it would otherwise not have occurred without small business funding or investment into new products. 

Improved business credit score.

Repaying a small business loan on time can help a business improve its credit score, making it easier to secure additional loans in the future. 

Potential tax benefits.

Depending on the specific terms of the loan and the business's tax situation, the interest paid on a small business loan may be tax-deductible. This tax deductibility can mean that Kiwi businesses can offset some of the cost of the loan through tax savings. 
Cons:

A higher debt burden.

A small business loan is a form of debt, and taking on debt can be a financial burden for a business. The business will be required to make regular loan payments, which can strain its cash flow.

Increased monthly costs/outlay from interest expense.

Small business loans typically carry 'above mortgage rate' interest charges. The interest rate and terms of the loan will depend on the lender and the business's creditworthiness, but in general, higher interest rates can make the loan more expensive.

Increased risk of defaulting on your loan.

If a business cannot make its loan payments on time, it may default, which can have serious consequences. For example, the lender may take legal action to recover the money, and the business's credit score may be damaged, making it more difficult to secure additional loans in the future.

The potential risk of losing your collateral/assets.

Some small business loans may require the business to pledge collateral, such as equipment or real estate, as security for the loan. If the business defaults on the loan, the lender might be able to seize the collateral to recover its money.

Limited flexibility on how to spend the money.

Once a business takes out a small business loan, it is generally required to stick to the terms of the loan agreement, which may be inflexible if the business's financial situation changes.
​
Taking on a small business loan can be useful to access the financial resources needed to start or grow a business. Still, it's important to consider the potential drawbacks carefully and ensure that the business can manage the added financial responsibility.

Top Tips for Successfully Securing a Small Business Loan

Improve your credit profile and history.

Having a good credit profile is essential for securing a small business loan. Try to improve your credit profile before applying for a small business loan if there have been some issues. You can do this by paying off outstanding debts (if feasible), reducing your credit utilisation ratio (the amount of credit you use relative to your credit limit), and regularly making on-time payments.

If you're applying for a personal loan to use for business purposes, our guide to credit scores and history explains all the options available.

Have a solid business plan.

As mentioned earlier, a well-written business plan is essential for securing a small business loan. Include details on your business idea, target market, financial projections, and marketing strategy.

Shop around for the best rate on offer.

Don't be afraid to compare and contrast loan offers from different lenders. This comparison will help you find the best loan product that meets your needs and budget. Our business loan comparison guide is a helpful starting point.

Be prepared to provide multiple different documents.

With increased regulation making it harder for banks to provide riskier loans, many lenders are becoming more stringent on the loan application process (for credit cards, mortgages and small business loans alike). Therefore, ensure you have all the necessary documentation before starting the loan application process. This preparation will help speed up the process and increase your chances of approval.

Consider government-backed loans.

​If you have trouble securing a loan from a traditional lender, consider applying for a government-backed loan. These loans are typically offered at lower interest rates and have more flexible repayment terms.

For example, you may be able to apply for the Small Business Cashflow Scheme loan Applications for the Small Business Cashflow Scheme (SBCS) are open until 31 December 2023.

Small Business Loans - Must-Know Facts

Ensure you’ve carefully read the terms and conditions of your small business loan.

It's also important to carefully consider the terms of the loan, including the loan amount, interest rate, and repayment schedule, and choose a lender that meets your needs and budget.

Consider other loans available to New Zealand businesses.

In addition to traditional small business loans, other financing options are available for small business owners in New Zealand, including grants, crowdfunding, and angel investment. These options may be worth considering if you cannot secure a loan or are looking for alternative ways to fund your business.
​
When considering any financing, it is important to research your options carefully and thoroughly evaluate the terms and conditions before committing to a loan or other financing option. In addition, be sure to understand the repayment terms, fees, and any potential risks associated with the financing option.

Check with a registered financial professional before taking out any additional debt.

It's always a good idea to seek the advice of a financial professional or business coach before deciding on financing for your small business. They can help you assess your financing needs and advise you on the best options for your business.

Make sure you've got a solid plan to pay back the small business loan BEFORE you get the money.

It's also important to carefully manage your debt and ensure you can repay the loan according to the agreed-upon terms. This plan includes making timely payments and not taking on more debt than you can pay back.

Stay in constant communication with your lender, especially if you’re having trouble paying the debt back.

If you are having trouble repaying your small business loan, it is important to communicate with your lender and try to find a solution. Many lenders will work with you to find a repayment plan for both parties. However, if you cannot agree with your lender, it could result in default and potentially serious consequences, such as legal action or damage to your credit score.