Your loan offer says 'repayable on demand'. Can the lender really call it in?

Somewhere in the facility letter, between the limit and the security section, sits a line that reads “repayable on demand”. It’s easy to skim past because nothing about it looks like a cost. There’s no fee attached and no number to compare. But it changes what you’ve actually bought, and it’s worth a few minutes before you put a signature next to it.

This guide is about that one clause, read before you sign. It’s for the shopper who is still comparing, not the owner whose bank has already asked to be repaid.

What does “repayable on demand” actually mean?

It means the lender can ask for the whole balance back whenever it chooses, with no breach by you needed. You can be paid up to date, inside your limit and trading well, and the right still exists.

That’s the difference from a normal fixed-term loan. A term loan sets out a repayment schedule, and the lender can only speed things up if a listed event happens. An on-demand facility has no schedule that binds the lender. The balance simply sits there, available to you, for as long as the lender is happy.

Three phrases do similar work, and they turn up in the same documents:

• “Repayable on demand”: the lender can call the balance at any time.
• “Uncommitted”: the lender isn’t obliged to let you keep drawing, and can reduce or cancel the limit.
• “Subject to annual review”: the lender reserves the right to reassess every year, and the outcome might be a smaller limit, new conditions or an exit.

If your offer uses one of these and you assume you have “a $100k overdraft for as long as you need it”, you’ve read it more generously than the paper does.

Which lenders use it, and how do they use it?

Stall	Where you’ll meet the clause	How it tends to work in practice
Main banks	Overdrafts, some working-capital and revolving facilities	Often standard wording, with a yearly review that is usually a conversation
Smaller banks	Similar facilities	Similar wording; sometimes more willing to adjust it
Invoice financiers	Funding lines against your invoices	Typically uncommitted: the lender chooses which invoices to fund
Fintech lenders	Revolving lines drawn from bank data	Limits can shrink or freeze when your data changes
Non-bank and private lenders	Mostly fixed-term loans	Usually rely on default triggers instead, but read each document

This is a pattern, not a rule, and it varies from lender to lender. The only way to know is to read the facility letter and the general terms, which is why we send people to the checklist for checking a loan offer.

Is “on demand” the same as a default clause?

No, and mixing them up is how people misjudge risk.

A default trigger is tied to something you do or something that happens: a missed payment, a covenant breach, a change of ownership, an insolvency event. You can manage those. You know the list, and you can see them coming.

An on-demand right needs no trigger. You can’t avoid it by behaving well, only by relying on the lender’s goodwill and its own appetite for risk. Most facilities carry both: default triggers for events, plus the on-demand right as a backstop. A facility with default triggers only is meaningfully more predictable.

If the lender does go on to enforce a mortgage over property, the Property Law Act 2007 requires a notice giving the borrower at least 20 working days to remedy a default before the lender can enter possession or sell. That’s a real protection, but it works at the enforcement stage, after the demand. It doesn’t stop the demand being made, and it doesn’t give you 20 working days to find a replacement lender while the facility is also withdrawn.

Does an on-demand facility change what an offer is worth?

Yes, and this is where shopping beats reading. Two offers can show the same limit and the same fees and still be worth different amounts to you.

Illustrative example. A joinery workshop in Hamilton gets two offers for a $120k working-capital facility to cover timber and wages between invoices.

	Offer A	Offer B
Limit	$120,000	$120,000
Facility fee for the year	$1,800	$2,700
Establishment fee	$600	$900
Committed term	None, repayable on demand	24 months, committed
Notice before the lender can reduce the limit	None stated	60 days, in writing
Year-one cost of the fees	$2,400	$3,600

On fees alone, Offer A saves $1,200 in year one. But the owner has just taken on a $90k timber order for a school fit-out, funded entirely from the facility. If Offer A’s lender reviews the limit down to $60k in month five, that owner is $30k short with the order half-built and suppliers waiting. The $1,200 saved is small against that. If the order is a one-off and the owner can fall back on a deposit, Offer A might still be the better choice. The point is to price the certainty deliberately rather than discover it later.

Our offer comparer puts both offers into the same dollar measures. Add a line for “what happens if the limit shrinks”, because the table won’t do it for you.

Not sure which structure suits your business? Tell us what you’re working with and we’ll help you work out which stall is most likely to offer a committed facility.

What should you ask for before you sign?

Three asks, in rising order of difficulty. You won’t always get all three, but each one reveals how the lender sees you.

1. A stated notice period. Ask: “Can you confirm in the facility letter that you’ll give at least 60 days’ written notice before reducing or withdrawing the limit, other than for a default?” Lenders are more likely to agree to this than to remove the clause.
2. A committed term for the bigger limit. If the facility is essential to a contract or a season, ask for a committed term of 12 to 24 months, with the fee reflecting it. It costs more, and certainty is what you’re buying.
3. The review criteria in writing. Ask: “What will you look at in the annual review, and what would make you reduce the limit?” Typical answers include turnover trends, account conduct, security value and covenant compliance. If the answer is vague, so is your position.

Our guide to negotiating business loan terms has the wording for pushing back politely, and it’s worth using a competing offer honestly. A second quote with a committed term is the most persuasive argument you’ll make.

business.govt.nz reminds borrowers that one of the common mistakes is “not understanding the terms and conditions of your loan”. On-demand wording is a textbook example, because it only matters on the day it matters.

What if the clause is non-negotiable?

Sometimes it is, especially on bank overdrafts and standard forms. You have three sensible choices.

• Use the facility for what it’s good at. On-demand facilities suit day-to-day cash-flow smoothing, where the balance is cleared regularly. They’re a poor fit for funding something you can’t reverse, like equipment or a fit-out. For those, a fixed-term loan (see business term loans) matches the need better.
• Keep a second source in reserve. Having a second stall already approved, even unused, means a reduced limit is an inconvenience rather than a crisis.
• Ask whether the terms are standard-form. The Commerce Commission explains that the Fair Trading Act’s unfair contract terms rules can reach some take-it-or-leave-it business contracts of up to $250k in a 12-month period. Whether a particular lending contract is covered is a question for a lawyer, so don’t build your plan on it, but it’s a reason to keep a copy of what you signed and to ask questions early.

Also check what the facility is secured by. A general security agreement or mortgage stays registered until it’s released, and a demand on one facility can matter more if the same security backs your other borrowing. The PPSR explains how security over business assets is registered, and our secured overdraft guide covers what a mortgage can reach beyond the overdraft.

Which stall should you shop at?

A rough sorting guide:

• If you need flexibility and expect to repay quickly, an on-demand overdraft with a stated notice period can be fine.
• If you need certainty for a project, season or contract, look for a committed facility or a term loan.
• If you need both, a smaller on-demand overdraft for the daily swings plus a committed term loan for the big, lumpy items often works better than one big facility.

Whichever way you go, put the clause on your shopping list next to fees and security. Our seven-step shopping plan has a place for it.

Ready to see which offers keep their promises?

A lender’s rate card tells you what a facility costs. The fine print tells you how long you’ll get to keep it, and that’s often the part owners wish they’d asked about. We talk through exactly this with business owners, and we’re happy to look at yours.

The enquiry takes about a minute, and it won’t leave a mark on your credit file, because there’s no credit check just for asking. We don’t send your details to a pile of lenders, so there’s no flood of calls. A real person reads your situation, looks at what you need the money to do and how certain you need it to be, then phones you to talk through the options. Please fill the form in accurately, particularly the limit you want, how long you need it and what security you can offer, so the first option we bring you is a good fit.

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