Picture two founders. One needs $80,000 for a commercial oven and fit-out, paid once, used for years. The other needs somewhere between $10,000 and $50,000 at different times over the year — supplier deposits, a restock here, a GST bill there. They both need funding, but they don’t need the same kind.
How each one works
Lump-sum loan (term loan). You borrow a set amount, receive it all up front, and repay it in regular instalments over an agreed period. The cost of borrowing applies to the full amount from day one.
Line of credit. You’re approved for a limit. You draw what you need, when you need it, and repay it — often as cash comes in — after which the repaid amount is available to draw again. Pricing structures vary by lender, but the main cost generally relates to the amount you’ve actually drawn.
Side-by-side
| Lump-sum loan | Line of credit | |
|---|---|---|
| Money arrives | All at once | As and when you draw |
| Best for | One-off, planned purchases | Repeating or uncertain gaps |
| Repayment | Scheduled instalments | Flexible, as you repay draws |
| Reusable | No — apply again for more | Yes, up to your limit |
| Discipline needed | Low: repayments are automatic | Higher: easy to leave it drawn |
| Typical uses | Equipment, fit-out, vehicle, a single big order, paying out IRD debt | Supplier deposits, payout delays, ad spend, GST timing, restocks |
Five situations where a line of credit wins
- Payment-platform lag. You sell every day but get paid every few days. A line smooths the gap.
- Staged supplier payments. Deposit now, balance in six weeks, freight after that. Draw at each stage instead of borrowing the lot on day one. See import order funding.
- Ad spend that flexes. Budgets go up when a campaign is working and down when it isn’t.
- Seasonal peaks. Build stock for Black Friday, repay from December sales, leave the limit ready for next year.
- Slow-paying clients. Agencies and B2B businesses covering wages while invoices are outstanding.
Five situations where a lump-sum loan wins
- Equipment or vehicles. A known cost, used for years. See equipment and tech funding.
- Fit-outs. A café, studio, salon or shop fit-out is a planned project with quotes.
- Buying a business or a second location. A defined amount for a defined purpose.
- Clearing IRD debt. Paying it out in one hit, then repaying on a schedule.
- When you want forced discipline. Scheduled repayments mean the balance goes down whether you think about it or not.
The hidden risk with lines of credit
Flexibility cuts both ways. The common trap is a line that never gets repaid — it creeps up to the limit and stays there. When that happens, a line of credit has quietly become a permanent loan, and it often means the business has a margin problem, not a timing problem.
Good habits:
- review your drawn balance every month,
- set a target date to get back to zero (or close to it) after each peak,
- if the balance never comes down, check your unit economics and pricing.
The hidden risk with lump-sum loans
Borrowing more than you need “just in case” means paying for money that sits idle. Borrow for the costed plan plus a sensible buffer, not the maximum a lender will offer.
A quick decision guide
Answer these:
- Is it one purchase with a known price? → Loan.
- Will you need money several times over the year? → Line of credit.
- Do you know exactly how much you’ll need? Yes → loan. No → line of credit.
- Will normal trading repay it within a few months? → Line of credit works well.
- Is it a long-life asset? → Loan.
Plenty of businesses end up with both: a loan for the fit-out, a line for the rhythm of trading.
Who qualifies?
Unsecured loans and lines of credit are generally available to businesses trading around six months or more, with the amount based on turnover and bank statements. Weaker credit is considered, and some decisions come back the same day.
If you’re newer, or need a larger amount than turnover supports, a property-secured loan of $20,000 to $1m against NZ property you or a supporting party own is the usual alternative. See property-secured business loans explained.
Worked example: the same business, two needs
Example scenario — generic and illustrative only. A Christchurch outdoor-clothing brand trading for two years has two funding needs this year.
First, it wants to fit out a small warehouse with racking, a packing bench and a label-printing station. The quotes total around $38,000 and the work happens once. That’s a clear case for a lump-sum loan: known amount, one-off spend, repaid over an agreed period from normal trading.
Second, it places three production orders a year with a factory overseas, each requiring a deposit and a balance before shipping, and it runs heavier ad spend before each launch. The cash gaps repeat, vary in size and close again as stock sells. That’s a job for a line of credit: draw for each deposit and campaign, repay as payouts land, then do it again next season.
Using one product for both jobs would have been clumsy — either borrowing a big lump sum that sits idle between orders, or trying to fund a permanent fit-out from a facility designed for short gaps.
Questions to ask before you sign either
- How is the cost calculated — on the full amount, or only what’s drawn?
- What are the repayment expectations, and can I repay early?
- Are there any fees for setting up, drawing, or keeping the facility open?
- How and when will the limit be reviewed?
- What happens if a repayment is late?
Your lending specialist should explain all of this clearly before you commit.
How Business Loanz helps
Not sure which shape fits? That’s what the first conversation is for. Enquire in about 60 seconds — no credit score impact — and a lending specialist will talk through a loan, a line of credit or a mix.