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How to get a small business loan in NZ

Friday, 22 September 2023

How to get a small business loan in NZ

In New Zealand, starting a business is an exciting experience, but it always requires financial help in the form of a business loan. Applying for a small business loan is a very practical technique to get help. Although the process might be a little bit difficult, understanding the requirements and what you need to prepare will improve your chances of success. In this blog, we will walk you through the process of getting a small business loan in New Zealand, and let you know what you need to do to apply for a small business loan.

 

Step 1: Determine your eligible

Before you dive into the loan application process, it’s important to ensure that you are eligible to apply. Even though each situation may have unique circumstances, here are some common factors that need to be considered:

  • Legal Business Structure: Your business must be a registered entity in New Zealand, such sole trader, partnership, or limited liability company, and it should have been operational for at least a year.
  • Creditworthiness: To ensure that you will be able to repay the loan in the future, lenders will evaluate both your company and personal credit histories.
  • Business Viability: Lenders want to see evidence that your business can gain sufficient revenue to pay back the loan. A strong company plan can help demonstrate this.
  • Collateral: To secure a loan, some lenders might require collateral like business assets, company vehicles, or real estate. So, please be prepared if your lenders request.

 

Step 2: Type of small business loans

In New Zealand, there are 4 main business loans and you can select the one that is best for your company.

  • Unsecured business loans: These loans will not require any collateral, but they might have higher interest rates and lower loan amounts.
  • Secured business loans: Secured business loans imply that to obtain the loan, you must put up some significant assets or personal guarantees as security. You can borrow more money at lower interest rates in this method. However, the lender has the right to claim the security as their own if you don’t make payments.
  • Invoice Financing: Invoicing financing can be useful if your company frequently receives unpaid bills. Lenders will give you a portion of the invoice’s worth in advance, and you get the rest (less costs) when your customer pays.
  • Peer-to-peer lending: Peer-to-peer lending (P2P) also called social lending, is a type of online lending that links private individuals with borrowers through an online platform. However, it’s crucial to thoroughly analyze the conditions and costs related to P2P loans and consider the potential risks.

 

Step 3: Prepare the necessary documents

One of the most important steps in the loan application process is to prepare the necessary documents. Here’s a list of documents:

  • Business plan
  • Financial statements
  • Bank statements
  • Personal and Business Tax Returns
  • Collateral information
  • Legal documents: Business registration documents, and licenses
  • Driver license

 

Step 4: Research lenders

There are various lending options in New Zealand. You can consider traditional banks, online lenders, or credit unions. Each lender may have their own requirements, interest rates, fees, and terms, so comparing your options is quite necessary. Or you can come to Credit One, where our knowledgeable broker can assist you in making the comparisons and recommend the best option for you.

 

Step 5: Complete the Application

Once you have selected a lender, it’s time to submit your small business application. Please fill out the application form correctly and double-check all the documents you have signed. Please be sure to properly read the contract and all of the terms as well.