Quick answer
Business loan jargon in New Zealand mostly falls into five groups: cost words (establishment fee, line fee, total cost of finance), security words (first mortgage, second mortgage, caveat, general security agreement, PPSR), structure words (term, balloon, interest-only, redraw), condition words (covenant, condition precedent, personal guarantee, default) and exit words (early repayment fee, break cost, discharge). Knowing them helps you read offers, ask sharper questions and compare lenders properly.
Key points
- Most loan jargon fits five groups: cost, security, structure, conditions and exit.
- Security terms tell you what's at risk; read them most carefully.
- Condition and covenant terms can trigger default even if you pay on time.
- Exit terms decide the cost of changing your plans.
Every market has its own language. Fishmongers talk about “day boat” and “line caught”, greengrocers about “seconds” and “first of the season”. The business lending market is no different, and its jargon can make a simple loan sound complicated. This glossary translates the terms New Zealand business owners meet most often, grouped by what they’re really about.
Keep it open while you read an offer. If a term in your offer isn’t here, ask the lender to explain it in writing.
What do the money and cost words mean?
Amount borrowed (principal). The sum the lender advances. Not always the same as the money you receive.
Money in hand (net advance). What actually reaches your account after any fees or prepaid interest are deducted at settlement.
Establishment fee. A one-off charge for setting up the loan. Sometimes paid separately, sometimes deducted from the advance, sometimes added to the loan.
Broker fee. A fee paid to a broker for arranging the loan, often deducted at settlement. Separate from any commission the lender pays the broker.
Account or administration fee. A recurring charge, often monthly, for maintaining the loan.
Line or facility fee. A charge on the limit of an overdraft or line of credit, usually payable whether or not you use it.
Draw fee. A charge each time you draw on a line of credit.
Prepaid interest. Interest paid upfront, usually deducted from the advance. Common with some short-term and private loans.
Capitalised interest. Interest that isn’t paid as you go but is rolled into what you owe, so the balance climbs over the term.
Dishonour fee. A charge when a scheduled repayment fails because there isn’t enough money in the account. Frequent dishonours also count against you with future lenders.
Legal and valuation costs. Your lawyer’s fees, sometimes the lender’s legal fees, and the cost of any valuation. Usually paid by the borrower on secured loans.
Total cost of finance. Everything you pay beyond the amount borrowed: repayments minus the amount borrowed, plus fees. The best single number for comparing offers. See total cost of finance.
Cost per $1,000 borrowed. Total cost divided by the amount borrowed, times 1,000. Lets you compare offers of different sizes.
What do the security words mean?
Security. The asset or promise a lender can fall back on when repayments stop.
Record of title. Land Information New Zealand describes it as the electronic record proving ownership of land and the rights and restrictions that apply. Mortgages appear in its interests section.
First mortgage. A registered mortgage at the front of the queue; that lender gets paid out ahead of anyone else from a sale.
Second mortgage. A mortgage that sits in second place, behind an existing one. More risk for the lender, so usually more cost for you. See second mortgages.
Caveat. LINZ explains a caveat against dealings is a notice on a title by someone claiming an interest in the land, stopping certain dealings proceeding without them. Used by some short-term lenders as quick, lighter security.
LVR (loan-to-value ratio). Total lending secured against a property or asset, as a share of its value.
Valuation. An independent assessment of a property’s value, usually required for property-secured loans.
Personal Property Securities Register (PPSR). The Companies Office describes it as an online noticeboard where security interests over personal property are registered. Lenders register their interest; you can search it too.
Financing statement. The registration a lender makes on the PPSR describing its security interest.
General security agreement (GSA). A blanket charge over nearly everything the business owns now or acquires later, apart from land. Powerful for the lender, and it can make borrowing elsewhere harder.
Specific security. Security over one identified asset, such as a vehicle or machine.
Personal guarantee. A promise by an individual, usually a director, to repay the business’s debt if the business can’t. Can be limited to an amount or unlimited.
Joint and several. Wording often used in guarantees with more than one guarantor. It usually means the lender can pursue all guarantors together or any one of them for the whole amount.
Guarantor. The person or entity giving a guarantee. May include spouses or family trusts.
Consent of prior mortgagee. Agreement from an existing lender before another mortgage can be registered behind it.
Security terms tell you what’s at risk. If any of them puts more on the line than you expected, talk it through with a real person before you sign. There’s no credit check to enquire.
What do the structure words mean?
Term. The length of the loan.
Amortising. Repayments cover both interest and principal, so the balance falls over the term.
Interest-only. For an agreed stretch you pay just the interest, and the amount borrowed doesn’t shrink.
Balloon or residual. A large final payment left until the last day, which keeps the regular repayments smaller.
Fixed pricing. The price is fixed for a period, giving certainty but possibly break costs.
Floating pricing. The price can move during the term.
Revolving or redraw facility. You can repay and draw again up to a limit, like an overdraft or line of credit.
Repayment frequency. How often repayments are taken: daily, weekly, fortnightly or monthly.
Bridging loan. A short-term loan covering a gap until a known event repays it. See short-term and bridging loans.
Exit strategy. How you’ll repay a short-term loan in full at the end.
What do the condition and obligation words mean?
Letter of offer. The lender’s written offer setting out the main terms. May be binding once signed, or indicative until loan documents are signed.
Indicative offer or term sheet. A non-binding outline of terms, useful for comparing before formal approval.
Condition precedent. Something that must happen before the lender pays out: a valuation, signed guarantees, insurance, consents.
Covenant. An ongoing promise during the loan, such as providing financial statements, maintaining certain ratios, or not taking on more debt without consent.
Financial reporting requirement. An obligation to provide accounts or other information on a schedule.
Default. A breach of the loan agreement: a missed payment, a covenant breach, or an event such as insolvency. Can trigger default interest, fees and enforcement.
Default interest. A higher charge applied while the loan is in default.
Repayable on demand. The lender can call for full repayment, usually after notice. Common on some overdrafts.
Review. A periodic reassessment of a facility, which can lead to changes in the limit or terms.
NZBN. The New Zealand Business Number, a unique identifier for businesses, often used by lenders to confirm details.
What do the exit words mean?
Early repayment fee. A charge for repaying before the end of the term. May be a fixed dollar amount or a formula.
Break cost. Compensation to the lender for ending a fixed-rate period early. Varies with market movements.
Minimum interest period. A period of interest you must pay even if you repay sooner.
Discharge fee. A charge for removing a mortgage or other security once the loan is repaid.
Extension fee. A charge for extending a loan beyond its agreed term.
Refinance. Replacing one loan with another, often from a different lender.
More detail in early repayment and exit costs.
How do you use this glossary when reading an offer?
Illustrative example. A Napier wine-tourism operator receives an offer containing the phrases “GSA over all present and after-acquired property”, “conditions precedent including first-mortgagee consent”, “interest prepaid for three months”, and “early repayment: minimum interest period of six months”. Translated, that means the lender will have security over nearly everything the business owns, the deal can’t settle until the bank behind the property agrees, three months’ interest will be taken from the advance, and repaying before six months still costs six months’ interest. Armed with that translation, the operator asks the lender to drop the prepaid interest and shorten the minimum interest period, and compares the revised offer using the offer comparer.
Ready to read an offer with confidence?
Jargon is only confusing until someone translates it. When you enquire with us, a real person explains every term in plain English before anything is signed. Asking is free, involves no credit check, and your details aren’t passed around the market. Please fill in the form accurately, so the offer you end up reading is one that fits your business. See if you qualify.
Frequently asked questions
What does LVR mean on a business loan?
LVR stands for loan-to-value ratio: the loan amount as a share of the value of the property or asset securing it. Lower LVRs mean less risk for the lender and usually better terms for you.
What is a GSA?
A general security agreement gives a lender security over most or all of a business's present and future personal property, such as equipment, stock and receivables. It's registered on the Personal Property Securities Register.
What's the difference between a covenant and a condition precedent?
A condition precedent must be met before the lender pays out, such as a valuation or signed guarantee. A covenant is an ongoing promise during the loan, such as providing accounts or keeping certain financial ratios.
What is a balloon payment?
A lump sum due at the end of a loan's term, used to lower regular repayments. You need to plan to pay, refinance or sell the asset when it falls due.
What does 'repayable on demand' mean?
It means the lender can ask for the full balance to be repaid at any time, usually after notice. It's common on some overdrafts and is a reason not to rely on an overdraft for long-term needs.