Demystifying NZ Business Loans: What You Should Understand

In recent times, there has been a surge in customer interest regarding the purchase of businesses. However, acquiring a business loan in New Zealand differs significantly from the more conventional home mortgages. Today, we will explore the various methods of obtaining business loans for purchasing a business in New Zealand, as well as the essential considerations from a lending perspective when selecting the right business. 

Methods of obtaining business loans

Method 1: Leveraging Your Residential Property 

If you already own residential properties and qualify for a top-up from your existing property, this method can provide the necessary funds for buying a business. This approach is highly recommended as it utilizes your existing residential property to tap into the equity required for purchasing the business, potentially resulting in lower mortgage interest rates and reduced overall costs. 

Method 2: Unsecured Business Loan Assessment 

For those without additional properties or unable to secure additional loans through existing properties, some lenders may directly assess your eligibility for an unsecured business loan. However, taking this route requires careful consideration. 

Key Considerations for Unsecured Business Loans 

Loan-to-Value Ratio:

Business loans inherently carry higher risks, typically offering a loan-to-value ratio of around 50% of the business's value. You must be prepared to provide at least 50% of the purchase price in cash. 

Financial Accuracy:

Lenders evaluate the business's value based on the profitability reflected in the financial statements of the past two years. Ensuring that your financial data is accurate and reliable is crucial. 

Lease Contract Term:

Pay attention to the lease contract term for the location where the business operates. Shorter lease agreements may impact the loan approval amount. 

Business Factors:

The geographic location of the business, industry sector, operating history, your industry expertise, and any planned changes in the business's operation and management can all influence loan approval. 

Conclusion

Obtaining a business loan for purchasing a business is a meticulous process that demands careful planning and consideration. Whether you opt for a top-up from your existing residential property or an unsecured business loan assessment, it is essential to ensure that the loan-to-value ratio aligns with your funding needs and provide accurate financial data. Additional factors such as the lease contract term, business location, and industry background also significantly impact the loan approval process. Buying a business requires a well-informed decision-making process, and our team is here to provide support and advice at every step. 

We hope this content has provided you with valuable insights. We look forward to seeing you next time. 

Disclaimer: The content in this article are provided for general situation purpose only. To the extent that any such information, opinions, views and recommendations constitute advice, they do not take into account any person’s particular financial situation or goals and, accordingly, do not constitute personalised financial advice. We therefore recommend that you seek advice from your adviser before taking any action.