Borrow smart: What are the different types of business loans in NZ?
We get it - no one jumps out of their chair with excitement when they hear the word “business loan”. Like with a mortgage, getting a loan becomes a means to a wider purpose: to purchase your own home, or in this case to fund or grow your business.
Getting a business loan is one of the most common pathways for many New Zealand businesses to secure capital. Finding the right option however, can feel like an absolute maze. Lending options are often explained with a lot of financial jargon, with terms buried in the fine print.
One of the most common misconceptions is that comparing business lending options is all about the interest rate. While some lending options can come with lower fees, there are many things to consider such as the collateral, as well as the flexibility of terms.
Our mission at Bizzy is to help businesses thrive by making access to finance faster, and more transparent. We’re here to share the most common business lending options such as working capital facilities, asset loans or unsecured business loans, key things to consider and what to look out for when comparing business loan options
Working Capital Facility
Secured Business Loans
These loans typically have a set repayment period and require you to provide an asset like property or equipment as 'security' or collateral, which the lender can claim if you fail to make repayments. Repayment terms can vary widely from 1 to 5 years, and both business and personal assets can be used as collateral depending on the loan. Specific examples of secured business loans are asset, mortgage, invoice or trade finance loans, which we explain in more details below.
Typical Use:
Because the lender's risk is lower, secured loans often come with lower interest rates and allow you to borrow larger amounts over longer terms compared to unsecured loans for example.
Things to Consider:
Some lenders and many New Zealand banks like to use personal property as collateral for business loans - while this can mean more attractive rates for the loan, it’s a question of personal risk appetite.
Unsecured Business Loans
An Unsecured Business Loan does not require you to provide any particular business assets as collateral, with the loan approval based primarily on your business's financial health and cashflow.
Typical Use:
It’s often the fastest and most convenient business loan to obtain, with some providers approving and funding within the same business day, as lenders require less documents than with other types of loans.
Things to Consider:
Since the lender takes on more risk, these loans generally have higher interest rates and shorter repayment periods than secured loans. What’s sometimes not quite obvious, lenders may still require a personal guarantee from the business director, meaning personal assets can be at risk if the business does not pay back the loan. Businesses need to weigh up speed and flexibility against the costs of the loan.
Invoice Finance
Invoice Finance lets your business access cash tied up in your unpaid invoices, typically 80-90% of the invoice, rather than waiting for customers to settle their accounts. This type of funding is secured against the invoice, and repayments are triggered when the customer pays. It can help to smooth out cash flow, cover expenses or take on new projects without the delay of long payment terms.
Typical Use:
We speak to many business owners who use invoice finance not only for one particular invoice, but as a mechanism to manage cashflow throughout the year - similar to a working capital facility.
Things to Consider:
Some lenders require you to disclose to your customers that you’re using invoice finance. While many see this simply as a mechanism to grow their business, make sure you ask the lender about their specific process and are comfortable with it.
Our experience is that even if you don’t qualify for the grants, connecting with regional business support networks can unlock additional support for your business, such as access to capability mentors or students looking for valuable work experience.
Trade Finance
Trade Finance is particularly used by businesses buying and selling goods, for example in domestic or international trade. It’s a similar mechanism to invoice finance, but in this case a customer’s purchase order is used to advance funds. It essentially bridges the gap between purchasing the goods from your supplier and receiving the final payment from your customer for the sale.
Typical Use:
This is often used to manage risks and payment gaps typical for businesses in buying and selling goods and helps smooth out cashflow.
Things to Consider:
Similar to invoice finance, there is an initial assessment and setup process that may take 1-3 weeks depending on the provider.
Property Finance
Property Finance, or also called mortgage lending, is a type of secured business loan where equity in a commercial or private residential property is used as security for the loan.
Typical Use:
When using high value real estate as collateral, the lender’s risk can be significantly lower - this means they may be able to offer larger loan amounts, competitive interest rates and longer repayment terms to smooth out cashflow.
Things to Consider:
Again this comes down to personal risk appetite - as with other loan securities, lenders can claim the asset in the case of nonpayment.
Asset Finance
This type of finance is used specifically to purchase equipment, machinery or vehicles. The purchased asset itself becomes the security for the loan. If you’re looking to purchase new assets, New Zealand’s latest Investment Boost program also allows for additional tax deductions for new asset purchases.
Typical Use:
It allows your business to gain immediate use of essential equipment without having to pay large amounts of capital upfront, spreading the cost over the asset's life.
Things to Consider:
There are also options to lease equipment or purchase used assets for example for IT equipment, making it a more sustainable and environmentally friendly option. If you request funding via our Bizzy platform to purchase equipment, we connect you to providers that can offer these sustainable equipment solutions.
In Summary: How to Compare Business Loan Options
Business loans can provide a boost for a business without giving away equity. Options include traditional business loans secured against business assets, invoices or property, or a facility with a pre-approved limit to dip into as needed.
One of the most common misconceptions is that comparing business lending options is all about the “headline interest rate”. Some lending offers can come with lower fees, but also more pressure on personal assets, or less flexible terms.
When comparing lending options, here’s what we see smart business owners look for when comparing lending options:
Interest rates: what is the annual interest rate
Total cost of loan: this can include establishment fees or ongoing management fees
Repayment terms: depending on the type of loan and provider, some lenders can offer longer repayment terms to help smooth out cashflow
Repayment schedule: make sure to be clear whether repayments are monthly or more frequent
Flexibility: some providers are more flexible than others, check whether they allow early repayments or changes to the loan if circumstances change
Speed of approval: sometimes cashflow is needed - yesterday. Sometimes, business owners favor speed over fees, but if businesses are planning ahead they may be able to secure better offers with more time on hand.
As we always say, there is no one size fits all, and business owners need to weigh up their specific situation, costs and risk appetite. This article is here to help compare the different types of business lending, potential benefits and what to look out for. As one of our partners FundTap says:
"Finance should be a tool to power growth, not a label of desperation. Transparent, easy, fast, and empowering. Something you’re proud to use because it’s giving you an edge, not a headache."
– FundTap
We found the most difficult part for business owners is usually having to figure out which type of loan to search for in the first place. This is why Bizzy allows business owners to simply tell us about their business needs, and our lending partners can provide the best loan types and personalised quotes for your situation via our Bizzy platform.
If you are currently exploring funding, and have questions - we always love to chat!
This article provides general information about different types of business finance products available in New Zealand, and is not financial advice, or a recommendation to acquire any specific product. Bizzy does not offer loans, financial advice, or personalised recommendations. All finance options are subject to the individual lender's criteria and terms. You must assess any lender or offer yourself, and consult with a qualified financial adviser, accountant, or lawyer before making any financial decisions.
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