Most lenders will lend you the smaller of two numbers: what your business can afford to repay, and what your security will cover. Ability to repay comes first. Security is the back-up if things go wrong.
You can estimate both at your kitchen table. Work out how much profit is left after your existing debts and your own pay. Keep a cushion on top. Then add up what you could put up as security. The lower of those two answers is your realistic ceiling, and the lender's own figure will usually be a little less.
Key Takeaways
- A lender looks at repayment ability (profit and cash flow) and security (property, equipment, other assets). Both limit the loan.
- For a business purchase, NZ banks generally finance about 40 to 60% of the price.
- Against your home, banks will usually lend up to about 80% of its value, less what you already owe on it.
- A new business is judged mostly on its plan, your personal credit and any security, so expect a smaller loan and a higher rate.
- Borrowing right up to your limit is usually a mistake. Leave room for a bad month.
What a lender actually looks at
A lender has two questions. Can this business pay the money back? And if it can't, what can we sell to get our money back?
Everything on the application feeds one of those two questions.
Can you pay it back? The lender looks at what you own, what you owe, and what the business earns. They then work out whether the business can cover the repayments. They also count any other income you can bring in, and any debt you are already paying off.
For a business purchase, they also look at the type of business, its cash flow and history, and your experience running one like it. In my experience, experience counts for more than most owners expect. A lender is much happier lending to someone who has run a similar business before.
What is behind the loan? The bigger the loan, the more security the lender wants. Security means something the lender can claim if you stop paying: a house, a building, equipment, or money owed to you by customers.
That is why a loan is limited by the collateral you can offer and by your ability to repay. Having plenty of security does not rescue a business that cannot afford the repayments. And a strong business with nothing to offer as security may still be offered less.
A simple affordability check you can do yourself
This takes ten minutes. You need your latest year's profit, your current loan repayments, and what you need to pay yourself.
- Start with your yearly profit. This is what is left after all business costs.
- Take off what you already pay each year on loans, overdraft interest and other finance.
- Take off the pay you need to live on, if it is not already counted as a cost.
- Divide what is left by 1.25. That keeps a 25% cushion. A common yardstick is that lenders want profit to cover repayments about 1.25 times over. The exact figure varies by lender, but the idea is the same: they do not want a loan that only just fits.
- Divide by 12. That is the monthly repayment you can realistically afford.
A worked example
Say a builder makes $90,000 profit a year. They already pay $18,000 a year on a ute loan and need $12,000 a year more than they already count as pay.
- $90,000 − $18,000 − $12,000 = $60,000 left
- $60,000 ÷ 1.25 = $48,000 a year for repayments
- $48,000 ÷ 12 = $4,000 a month
Over a 5-year loan (60 months), that is $4,000 × 60 = $240,000 in total repayments.
That is not the loan size. The $240,000 includes the interest. The real loan is smaller, and by how much depends on the rate and the term. Treat $240,000 as an upper limit and ask a lender for the actual rate to work back from.
Two things move that number straight away:
- A longer term lowers the monthly repayment, so you can borrow more. You also pay more interest overall.
- A higher rate raises the monthly repayment on the same loan, so you can borrow less. Newer or weaker businesses are usually offered higher rates, which cuts what they can borrow.
For a feel for what money costs: the Reserve Bank reported the average new overdraft rate for small businesses at 10.06% in August 2026. If you drew a full $50,000 overdraft at that rate for a year, the interest would be $50,000 × 10.06% = $5,030. Term loan rates differ, so get a real quote, but that gives you a sense of the cost.
How security changes the amount
Security is the second limit. Lenders do not lend 100% of what an asset is worth. They lend a share of it, because the asset might fall in value or be hard to sell quickly.
Here are the NZ bank rules of thumb:
| What you are borrowing against | What a bank will generally lend |
|---|---|
| Buying a business | About 40 to 60% of the purchase price (a well-known franchise may reach the top of that or a little more) |
| Commercial property (motels, hotels, land and buildings) | About 50 to 65% of the valuation |
| Your home or rental properties | Usually about 80% of the value |
| Plant and equipment | Few lenders accept it, and they are unlikely to go over 60 or 70% of its value |
The more secure the asset and the stronger the cash flow, the more favourably the lender values it.
Your house is the biggest lever, and the biggest risk
Borrowing against your home can look very attractive. Residential rates are lower than business finance rates, so using the equity in your home can cost less.
Equity means what the house is worth minus what you still owe on it. Here is the arithmetic:
- House worth $800,000, mortgage of $400,000
- 80% of $800,000 = $640,000
- $640,000 − $400,000 = $240,000 of room
I will give you my view plainly. It is often the cheapest money available, but you are putting your family home behind a business loan. If the business struggles, the bank can look to the house. Only do it if the business can comfortably afford the repayments without help from the house. Do not use the house to cover a business that cannot afford the loan.
Equipment and stock
Equipment loses value and can be hard to sell fast, which is why lenders will only lend part of its worth. Stock is similar. A lender wants an asset they could sell without a fight.
If you are buying equipment, the equipment itself usually becomes the security. Heartland Bank, for example, finances things like trucks and trailers, civil construction equipment, manufacturing equipment, agricultural equipment and helicopters. Its terms run from 12 to 60 months, and repayments can be set to suit your cash flow or seasonal needs. A seasonal business should ask for this. Repayments that follow your busy and quiet months are far safer than an even payment that hurts in winter.
Invoices
Invoice finance lets you borrow against bills your customers have not yet paid. It helps when you are profitable on paper but waiting on slow payers. The lender will advance only a share of each invoice, and the share varies by lender, so ask for the figure and the full cost in writing.
What lowers the amount
Three things reduce what a lender will offer.
A short history
If you have not been trading long, the lender has little to go on. A startup loan leans on your business plan and your personal credit history, plus any security you can offer. Requirements are stricter than for established businesses, and rates are often higher, because you cannot point to a record of profit.
Lenders weigh a handful of things for a new business:
- A completed business plan that shows the opportunity and how you will run it
- Your own money put into the business
- Security, such as property or business assets
- A personal credit history with no recent defaults
- Evidence you can repay from forecast cash flow
The size of startup loans varies a lot. Most range from about $5,000 to $500,000 depending on the plan and security. Unsecured loans are common under $50,000, but you pay a higher rate for them because the lender has nothing to fall back on. Adding a guarantor (someone who agrees to repay if you cannot) can strengthen an application.
Losses
A lender mostly repays itself from your profit. If the business is making a loss, there is little or nothing to repay from. That is why the affordability check above starts with profit. If you are loss-making, expect a smaller offer, or a need for strong security or a guarantor.
Money you already owe
Every dollar you already pay out in loan repayments, overdraft interest or other finance reduces what is left for a new loan. The same goes for any tax you owe to IRD. It is another call on your cash. Be upfront with the lender about all of it. It nearly always comes out in the checks, and a lender who finds something you left out stops trusting the rest of your numbers.
What I have seen sink applications is rarely one big flaw. It is usually a stack of small ones: thin records, a poor credit report, and borrowing that is too close to the limit. Our guide to why loan applications get declined goes through them.
How to borrow more safely
The most you can borrow and the most you should borrow are different numbers. My view for most small businesses: aim well below your ceiling.
There is no single right amount of debt. What matters is whether you can handle repayments now, and keep handling them if things change. A business should be able to take a knock without being in trouble.
Before you sign, ask yourself:
- Can I comfortably afford the repayments?
- Would they still be manageable if my sales dropped?
- Will this borrowing help me earn more, work faster or grow?
- Have I looked at other ways to fund it?
- Do I understand the full cost, not just the repayment?
Some practical steps:
- Borrow for a reason that earns money. Equipment that cuts your labour costs is a good reason. Borrowing to prop up unprofitable work, or to buy something you will barely use, is not.
- Keep a cash flow forecast that shows each month's repayment against your expected money in and out.
- Cover your first six to 12 months of running costs if you are starting out, so a slow start does not sink you.
- Avoid high-interest lending. Expensive money quickly makes debt harder to manage. Compare the total cost, not just the monthly figure.
- Keep your records clean and up to date, and check your credit report for mistakes before you apply.
- Reduce personal debt first if you can. It helps your application.
- Do not send applications everywhere at once. Each one can leave a mark on your credit file.
- Ask your accountant or a business banker early. A short chat before you apply costs nothing.
If you want a quick number to start from, our How much can I borrow tool does the sums for you.
Frequently Asked Questions
How much can a small business borrow in New Zealand?
There is no standard figure. It depends on your profit, your existing debts, your security and how long you have traded. As rough guides, banks generally finance 40 to 60% of a business purchase price and up to about 80% of the value of a home. Most startup loans range from $5,000 to $500,000.
Can I get a business loan without security?
Yes, especially for smaller amounts. Unsecured loans are common under $50,000. They cost more, because the lender has nothing to fall back on.
Can I borrow if my business has just started?
Yes, but expect to lean on your business plan, your personal credit history and any security you can offer. Rates may be higher, and a guarantor can help.
Is it a good idea to borrow against my house?
It is often the cheapest option, because residential rates are lower than business finance rates. But your home is then behind the loan. Do it only if the business can afford the repayments on its own.
What if my sales are seasonal?
Ask for repayments that follow your cash flow. Some lenders will set repayments to suit seasonal needs.
Deplexifi is a commercial finance broker, and we can tell you in a short conversation what a lender is likely to offer before you apply. You can also see our NZ business finance pages.
Treating the most a lender will offer as the amount to borrow. Size the loan to what you can still repay in a bad month, not to your ceiling.