business loan nz

10 Tips Before Applying For A Business Loan

Preparing well for your business loan application can mean the difference between an approval and being declined. When a lender assesses your business loan application they expect you to meet certain criteria to qualify for funding and if too many red flags are raised during their assessment they will decline your application.

Compare Business Loans are a business loan broker who know multiple lenders and exactly what each lender will be looking for when assessing your business. We know what to include with each application and which lender will be best suited for your loan requirements and your business situation.

To help you on your business loan journey we’ve put together a list of 10 top tips that will assist your application and increase your chances of approval. Enjoy!

5 Minute Business Health Check

Start a conversation today with Compare Business Loans, your local business finance NZ specialist. Complete a no-obligation, free business health check over a 5 minute phone call that includes:

  • What kind of lending you should be applying for
  • How much you will be eligible for
  • Which lender would be the best option for your business situation.

1. Research NZ lenders or use a broker

If you do your research into what your business lending options are before applying with a lender it will help in obtaining the outcome you want. LOAN APPROVED! In New Zealand when applying for a business loan you have the options of using a bank, a non bank lender or funding in other ways like borrowing from family or friends.

Each lender has their own requirements for businesses who apply for funding. Requirements could be minimum 6 months trading and $6000 minimum monthly revenue. Some lenders will not accept any bad credit records, regardless of whether they are resolved or on a payment plan. Some lenders will help fund new business and some won’t.

It is important to do your research on lenders and whether your business fits into their business lending criteria.

A broker can assist in helping you secure funds because they know which lenders will accept which type of business. Using a broker can save you a lot of time, application forms and potential declines because they have an established relationship with their lenders and know what is required to get a loan approved.

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Business plan for new business loan

2. Know why you are applying for a business loan

Make sure you know why you are applying for a business loan. Is it to grow your business? Is it to pay some bills and have a bit of breathing room with additional cashflow? Once you know why you are applying for a loan you need to decide whether it is for the right reason and that your business can successfully repay the debt.

If your business is struggling to make ends meet each month is a business loan going to help in the long term or is it just going to help for a month or so then you’ll be back in the same position again. You could look at streamlining your processes, speaking with your accountant to see where you could cut down your expenses to make the business more profitable and generate more revenue.

Make sure you know why you need those funds and address any business issues that could be tightened up. A business loan may just mean you end up in more debt which you’re struggling to repay. 

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3. Check your business and personal credit scores

One of the most common reasons for a business loan application being declined is due to bad credit history, either personal or business credit history.

New Zealand businesses have a credit score between 1 – 1,000. The higher your credit score the less risk you are to a lender and the more likely you are to meet your business loan repayment obligations. 

Your success in securing a business loan in NZ will often come down to your business credit history and also your personal credit history. If you have a history of defaulting on loan repayments this is seen as a red flag and high risk to lenders. If you have outstanding debt that hasn’t been resolved it is highly unlikely you would be approved for a business loan. 

If you do get approved with a history of loan defaults, whether resolved or still outstanding, your interest rates may be higher and security would probably be required to lower your risk to the lender.

Before you apply for a business loan it is a good idea to check your personal and business credit records in case you find an outstanding debt that needs to be paid. You may also find an old debt has not been updated as paid. Try and get your record as clean as possible so you have the best chance of securing the business loan you need.

You can find Credit Report services online to check your personal or business credit score such as Centrix.

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4. Write a business plan or business introduction

If you are starting a business, a business plan is necessary to help you set goals, research your target market, budget for startup costs and forecast your cashflow for trhe first 12 to 24 months. A good business plan will help you map out a strategy for success and identify your strengths and weaknesses which can be worked on as your business grows.

Some lenders will rely on your business plan to introduce your business and build your application profile so it is important to take your time when writing one and make sure you think about each part thoroughly. 

If you are buying an existing business you can use a business plan or a shorter “business introduction” which is a one-page introduction covering:

  1. About the business
  2. Skills/experience you bring to the business
  3. Customers
  4. Reason for the loan
  5. Vision for the business

You can create a free business introduction PDF on our website. We also have a free startup business plan template available for use. Contact us if you would like a copy emailed for you to complete.

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5. Get your bank accounts in good shape before applying for a business loan

One of the biggest red flags for a lender is bank account conduct. If your bank accounts are not up to scratch a business loan lender will be more likely to decline you. Lenders will look for payment defaults and if there are any they will check to see if they are rectified.

Lenders understand that sometimes a payment may have come out at a bad time of the month and will take that into consideration. However, they need to see payments are rectified as soon as possible and everything is up to date.

If you and your business are seen as one who regularly miss payments and don’t catch them up, it is less likely you will be approved for a business loan. If you are approved, missed payments are a perfect way to justify upping your interest rate so you will pay more for the loan over the loan term.

Obviously what you are spending your money on falls under account conduct too so keep your business expenses and personal expenses separate. These days pay by instalments services such as Afterpay, ZIP Pay etc are not a good sign on your personal or business accounts.

In general, a business loan lender will look at at least 3 months business bank statements and may also request personal bank statements (definitely for new business/buying a business). It is a good idea to get your bank accounts looking as good as possible for the latest 3 months to increase your chances of a business loan approval.

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5 Minute Business Health Check

Complete a no-obligation, free business health check over a 5 minute phone call that includes:

  • What kind of lending you should be applying for
  • How much you will be eligible for
  • Which lender would be the best option for your business situation.

6. Have a deposit when starting a business or buying a business

Contributing your own cash deposit is crucial when applying for a business loan for starting a business or buying an existing business. You will need between 30% to 50% to help secure the remaining amount from a lender.

A deposit shows the lender you can manage your money and are more likely to make your business loan repayments. By using your own savings you will also lower the amount you need to loan so you borrow less and will be seen as a lower risk for the lender. 

In most cases a deposit is required. An example where a deposit may not be required is if you are purchasing an asset such as a truck and have a contract or letter of intent which guarantees you an income. Some lenders will approve no deposit asset finance if the application includes an income agreement and a 12 month cashflow forecast. 

If you are starting a business and are unsure what you need to do to prepare your application, contact us and we can help you prepare the information required and get you to the right lender.

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7. Make sure you can meet your business loan repayments

Your weekly, fortnightly or monthly business loan repayment amounts need to be manageable for your business income. Make sure that even in quieter months your income will be larger than your repayment amounts. You need to keep in mind any unexpected expenses that may occur.

What happens if your truck breaks down and your business can’t operate until it is repaired, costing you $10,000? So not only do you have an unexpected bill to pay but you miss out on 1 weeks revenue because the truck was in the shop. Can you still meet your business loan repayment obligations?

A responsible lender will assess your business and decide whether you have enough income to service a business loan comfortably.

It is a good idea to do your own research into whether your business can afford to repay a loan as well however. You can complete a cashflow forecast with your accountant to give yourself a clear picture of what your monthly repayments will be for the next 12 months and whether your business can afford them. If you would like a 12 month cashflow forecast template, get in touch with us and we can email you a template to complete.

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8. Have financial reports ready from your accountant or online accounting software

For existing businesses, your latest financial report will likely be required for your business loan application. If your business is less than a year old, or has not completed a full financial year yet a Profit and Loss report will be the next best thing to include.

Your online accounting software should have reports such as Profit and Loss, Balance Sheet, Aged Receivables, Aged Payables which will all strengthen your application and increase your chances of approval.

Some unsecured business loan lenders will not require financials and will determine your ability to repay a loan by assessing your bank account history and monthly revenue. 

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9. Get your IRD gst and tax obligations up to date or on a payment plan

Your gst and tax returns may also be part of your business loan assessment so make sure you are up to date with IRD.

If you have fallen behind in payments this can be seen as a red flag and bad business management. If this has happened, get your debts on an approved payment plan so a lender can see you are willing to rectify the debt and are not ignoring it.

You can apply for a business loan to repay IRD debt however you may be limited on which lenders will lend for this reason. 

Speak with us if you are concerned about your businesses IRD debt and we can see which lender can assist with an IRD debt repayment business loan. 

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10. Know what you have available as security

If you are applying for a secured business loan you will need to have an asset you own outright available for use as security against the loan.

Make a list of what assets you have and what their values are. This will help you understand how much you can borrow and whether it will be enough for your requirements. As a general rule, when using an asset as security you can borrow between 50%-75% of the asset(s) value.

This percentage will vary with each lender as will what can be used as security. Common assets are vehicles, equipment, property, chattels. 

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Business loan lenders in New Zealand

We are partnered with multiple business loan lenders throughout NZ. Each lender provides different types of business loans and will offer different rates for small business loans depending on your business’ financial situation and financial history.

Heres a few lenders we work with and their basic lending criteria.

Get capital small business loans

Fast flexible business finance

• Loans from $5000
• Minimum 9 months trading
• Unsecured to $50k
• 10k or more monthly revenue
• Cashflow, asset, equipment finance

Heartland bank small business loans

Give your business a boost

• Unsecured up to $100k
• Terms up to 5 years
• Secured loans available
• No early repayment fees
• Interest rates from 11%

Fundtap invoice finance nz

Invoice Finance

• 100% online
• Loan off your outstanding invoices
•Funds in 24hrs
• Fast source of cashflow
• Use it when you need it

Pioneer Finance NZ

Your loan, tailored to you

• 100% online application
• Loan terms up to 7 years
• Secured finance
• Finance up to $100k
• Business finance for any reason

efco small business finance nz

We Finance Dreams

• 100% online
• From 8.95%
•Decision in 24hrs
• Startup business loans
• Vehicle finance, asset finance, cashflow loans

Speirs Finance NZ

The kiwi owned team growing kiwi businesses

• Truck Finance
• Repayment up to 5 years
• Heavy Machinery Finance
• 2nd hand asset finance
• Equity Release

Compare Car Finance New Zealand icon

Considering a business loan? We'll get you approved funding from the right lender!