The short answer
An unsecured business loan is lent without a mortgage over property. The lender relies on your business's trading, mostly what it can see in your bank statements, and usually on personal guarantees from the owners. That makes unsecured loans quick to arrange for smaller amounts, but they tend to cost more, run for shorter periods and often take repayments daily or weekly.
If you own property and need a larger amount, a loan secured over that property is usually cheaper per dollar and gentler on cash flow. If you do not, an unsecured loan may be the realistic option, so it pays to understand exactly what you are signing.
How unsecured business loans work
- Assessment. Most online lenders connect to your bank account or ask for recent statements. They look at turnover, how regular your deposits are, overdrawn days, dishonoured payments and the repayments you already make to other lenders. Many also check your credit file and how long you have been trading.
- Amount. Usually based on a share of your monthly turnover, so smaller businesses get smaller limits.
- Repayments. Often taken automatically every business day or every week, rather than monthly.
- Personal guarantees. "Unsecured" rarely means no one is on the hook. Directors normally guarantee the loan personally, so their own assets can be pursued if the business cannot pay.
- Security over business assets. Some lenders also take a general security interest over the business's assets and register it on the Personal Property Securities Register (PPSR). Read the contract to see exactly what you are giving.
When an unsecured loan makes sense
- You need a modest amount quickly and do not own property.
- Your turnover is steady, so daily or weekly repayments will not strain cash flow.
- The money will earn its keep quickly: stock that sells in weeks, or a job that pays on completion.
- You are comfortable giving a personal guarantee.
The risks to weigh
- Cost. Without property security, lenders price for more risk. Compare the total amount you will repay, including every fee, not the headline rate or a "factor".
- Frequent repayments. Daily or weekly deductions reduce the cash you have on hand straight away, including in quiet weeks.
- Stacking. Taking a second or third unsecured loan to cover the repayments on the first is a common trap, and each one adds to the daily drain.
- Fewer protections. A loan used mainly for a business purpose is generally not a consumer credit contract, so many consumer lending protections will not apply. Have the contract reviewed before you sign.
Long-term unsecured business loans
Unsecured loans generally run for months to a few years, because the lender has no security to fall back on. If you need a larger sum over a longer period, a bank loan or a loan secured over property is usually the better tool. Our guide to secured and unsecured business loans compares the two side by side.
Declined for an unsecured loan?
Online lenders often decline because of something in the last few months of bank statements: a quiet month, failed direct debits or existing loans. Check your credit report, which Centrix, Equifax and Experian each provide free, and ask the lender what tipped the decision. Our guide for owners who have been declined for a business loan sets out what to do next.
Where HomeSec fits
HomeSec does not offer unsecured loans. We are a direct, privately funded New Zealand lender of open-term business loans from $20,000 to $1,000,000, secured by a first or second mortgage over suitable residential or commercial property. Because the loan is secured, we can consider larger amounts and situations that unsecured lenders decline, such as a quiet trading period, IRD debt or a short trading history.
Many owners with property use a secured loan to replace several unsecured loans that take daily or weekly repayments with one facility. Approved facilities may offer up to six months with no scheduled payments, and interest still accrues during that time. Your property may be at risk if the loan is not repaid, so be confident in the plan to repay. If you own property, our guide to commercial loans and commercial mortgages in NZ explains how secured lending works, and our business loans page sets out how HomeSec lends.
Common questions
Can I get a business loan with no security in NZ?
Yes. Unsecured lenders lend on the strength of your trading and a personal guarantee rather than property. Amounts are usually smaller and costs higher than secured lending.
Do unsecured business loans need a personal guarantee?
Almost always. The guarantee means the lender can pursue the guarantors personally if the business does not repay.
How much can I borrow unsecured?
It depends on the lender and your turnover. Limits are commonly linked to monthly revenue, so they grow with the business.
Is a secured loan cheaper than an unsecured loan?
Usually, because the lender's risk is lower. Compare the total cost of both over the time you will realistically need the money.
Can I refinance unsecured business loans with a property-secured loan?
Yes. Refinancing business debt is a business purpose HomeSec lends for, provided there is suitable property security and a realistic plan to repay.