Got a business loan offer? What to check before you say yes

The moment an offer lands in your inbox is the moment many owners relax. The hard part’s over, right? Not quite. An offer is the lender’s opening position. This is when a shopper reads the label, checks the ingredients and asks whether there’s a better one on another stall.

Business loans mainly for business purposes generally sit outside New Zealand’s consumer credit regime, which the FMA describes as applying to individuals borrowing mainly for personal, domestic or household purposes. In other words, the fine print is yours to read. Here’s how to read it efficiently.

Check 1: How much money will you actually get?

Find the loan amount, then look for anything deducted before the money reaches you:

• establishment or application fees;
• broker fees;
• legal and valuation costs;
• prepaid interest; and
• payouts of existing debts the lender requires as a condition.

The figure left is your money in hand. If it’s well below what you need, the loan may not do its job, or you may need to borrow more, which increases cost.

Check 2: What’s the total you’ll repay?

Look for the repayment amount, the frequency and the number of repayments, and multiply. Add any fees charged separately during the term, such as monthly account fees or annual reviews. Subtract the loan amount and you have the total cost of finance. Our total cost page shows the arithmetic, and the offer comparer does it automatically for up to three offers.

If the offer doesn’t show enough information to calculate this, ask the lender to state the total repayable in writing.

Check 3: What security and guarantees does it need?

Read the security section slowly. You’re looking for:

What to look for	Why it matters
Mortgage or caveat over property	Your property can be at risk if the loan isn’t repaid
General security agreement (GSA)	Covers most or all business assets, registered on the PPSR, and can affect future borrowing
Specific asset security	Limited to the item financed; usually less restrictive
Personal guarantees	Makes guarantors personally liable; check whether limited or unlimited
Guarantees from trusts or spouses	Extends risk beyond the business and directors

The PPSR is a public noticeboard of security interests over personal property. Once a lender registers, other lenders will see it. A GSA can make it harder to raise other finance later without the first lender’s consent.

Check 4: What conditions do you have to meet?

Offers usually include two kinds of condition:

• Before settlement (conditions precedent): valuation, signed guarantees, insurance certificates, landlord or first-mortgagee consent, evidence of an IRD instalment arrangement, solicitor’s certificates and so on.
• During the loan (ongoing conditions or covenants): providing financial statements, keeping certain balances, not taking on more debt, notifying changes of ownership, keeping tax obligations current.

List the conditions precedent and start on them immediately; they’re the most common cause of delay. For ongoing covenants, make sure you can actually meet them, because breaching one can count as a default even if every repayment is on time.

Feeling unsure whether this offer is the right one? You can get a second, properly matched option to compare it against, with no credit check to enquire.

Check 5: What counts as default, and what does it cost?

The default clause tells you how the lender will behave on your worst day. Check:

• what triggers default: a missed payment, a covenant breach, a new IRD debt, insolvency events, a change of director;
• whether there’s a grace period or notice before action;
• what default interest and fees apply, and how they’re calculated; and
• what the lender can do: demand full repayment, appoint a receiver, take possession of security.

The Companies Office reminds directors not to agree to obligations the company can’t meet. If the default terms worry you, take that seriously.

Check 6: How do you get out, and at what cost?

Life changes. You might sell a property sooner than planned, win a contract, or qualify for cheaper bank finance. Check:

• whether you can repay early at all;
• the early repayment or break cost, ideally with a dollar example;
• whether partial early repayments are allowed; and
• any discharge or release fees for removing security.

Our page on early repayment and exit costs explains common fee structures.

What does a careful read look like?

Illustrative example. An Invercargill engineering firm received an offer for a $250,000 property-secured loan. The headline looked fine. A careful read showed a $9,000 establishment fee deducted from the advance, three months’ interest prepaid at settlement, a condition requiring the bank holding the first mortgage to consent within ten working days, and an early repayment fee equal to three months’ interest. Money in hand was noticeably less than $250,000, and the consent condition put the timeline at risk. The owners asked for the prepaid interest to be removed and the early repayment fee reduced, got a revised offer, and started the bank consent the same afternoon.

What should you do before signing?

1. Put the offer through the comparer next to at least one alternative.
2. List every question and get answers in writing, using our lender questions checklist.
3. Negotiate what matters most to you; see negotiating business loan terms.
4. Get independent legal advice on security, guarantees and the loan agreement.
5. Diary every condition and deadline.

Want an offer you’ll be happy to read twice?

If the offer in front of you leaves you uneasy, let a real person look at your situation and find a better fit. Asking is free, involves no credit check, and your details aren’t scattered across the market. Please complete the form accurately, including the amount and what it’s for, so the alternative we bring back is genuinely comparable. See if you qualify.