If you’re a younger founder, there’s a good chance you’ve been told “come back when you’ve been trading two years.” A property-secured business loan is how many New Zealand businesses get started anyway. It shifts the lender’s focus from your trading history to an asset — a property you, or someone backing you, already owns.
This guide explains how it works, who it suits and what to think about before you go ahead.
What is a property-secured business loan?
It’s a business loan where a New Zealand property is registered as security, usually via a mortgage. If the loan isn’t repaid, the lender has rights over the property. Because the lender has that security, it can lend to businesses that unsecured lenders can’t — including brand-new ones.
Through Business Loanz, property-secured business loans:
- range from $20,000 to $1m,
- are secured on NZ property owned by you or a supporting party — a home, rental or investment property, commercial property or land,
- can be a first or second mortgage, even if there’s already a mortgage on the property,
- need no financials or tax returns for the initial assessment,
- consider bad credit, defaults and arrears case by case,
- can refinance or pay out IRD debt,
- can sometimes be funded within 24 hours of approval,
- are for business purposes only.
Every loan is priced on the individual circumstances, and our job is to find the sharpest option available for yours.
First mortgage vs second mortgage
First mortgage means the lender is first in line on the property. This usually applies when the property has no existing mortgage, or when the new loan pays out the existing one.
Second mortgage means the business lender sits behind an existing lender — typically your bank’s home loan. The existing mortgage stays as it is, and the business loan is secured on the remaining equity.
Second mortgages are common for founders who have a home loan they’re happy with and don’t want to disturb it. Your existing lender’s consent may be required, and your lending specialist will explain how that works.
How equity works
Equity is the property’s value minus what’s owed on it.
Example: a Hamilton townhouse worth $750,000 with $450,000 owing on the home loan has $300,000 of equity. A lender won’t lend against all of it — they’ll keep a margin of safety — but that equity is what makes a second-mortgage business loan possible.
Using a supporting party’s property
Many younger founders don’t own property yet, but a parent or relative does. A supporting party offers their property as security for your business loan.
It’s a generous thing to do, and a serious one. Everyone involved should understand:
- what’s being secured and for how much,
- what happens if the business can’t make repayments,
- how and when the security could be released (for example, after the loan is repaid or refinanced),
- that the supporting party should get their own independent legal advice — this is standard practice.
Having an honest family conversation about the business plan, the risks and the exit before signing anything protects the relationship as well as the property.
What’s assessed?
Because the security does much of the work, the initial assessment is lighter than for a traditional bank business loan:
- The property: its type, location, value and what’s owing on it.
- The purpose: what the business needs the money for.
- The exit: how the loan will be repaid — business income, refinancing to a longer-term facility once the business has history, or another plan.
- Your situation: including credit history, considered case by case.
Who is it good for?
- Founders starting a business with no trading history — see startup loans.
- Businesses under six months old that don’t yet qualify for unsecured funding — see loans for new businesses.
- Businesses needing more than their turnover supports — a fit-out, a big import, a second site.
- Owners with IRD debt they want to pay out in one go.
- Borrowers with past credit issues that make unsecured lending harder.
What to weigh up
- The risk to the property. This is the big one. Only secure a loan on a property if you’re confident in the plan and have a fallback.
- The repayment plan. Know how repayments will be met if the business grows more slowly than expected.
- The exit. Many founders use a property-secured loan to get started, then refinance once the business has trading history.
- The total cost. Ask your lending specialist to explain all costs clearly so you can compare options properly.
Questions to ask before you proceed
- What’s the total cost of the loan, including any fees?
- Is it a first or second mortgage, and does my existing lender need to consent?
- How long is the loan for, and what’s the plan to repay or refinance it?
- Can I repay early, and are there costs for doing so?
- What happens if a repayment is missed?
- For a supporting party: when and how can their security be released?
Example scenario
Example scenario — generic and illustrative only. A 24-year-old in Tauranga wants to open a sneaker-cleaning and resale studio. She has a strong Instagram following and pre-bookings, but the business hasn’t traded yet and she doesn’t own property. Her father owns a rental property in Mount Maunganui with a small existing mortgage and offers to act as a supporting party. After both of them get independent advice and talk through the repayment plan — and what happens if the studio grows more slowly than expected — a second-mortgage business loan funds the fit-out, equipment and opening stock. The plan is to refinance to an unsecured facility once the studio has a year of trading, releasing her father’s property.
How Business Loanz helps
We’ll talk through whether a property-secured loan makes sense for your situation — or whether another route is better. Send an enquiry in about 60 seconds; it won’t affect your credit score.