Secured overdraft or unsecured: which should your business shop for?

Two overdrafts can look like the same item on the same shelf: a limit you dip into and refill as customers pay. Turn the price tags over, though, and they’re built differently. One has your house (or your commercial premises) standing behind it. The other relies on the business, a general security over its assets and your personal guarantee.

Which one should you shop for? It depends on three things: how long you’ll keep the facility, how big a limit you genuinely need, and how comfortable you are with your property sitting behind everyday working capital. This guide walks through each, then puts three illustrative offers side by side in dollars.

What’s the difference between a secured and an unsecured business overdraft?

The difference is what the lender can fall back on if things go wrong.

	Secured overdraft	Unsecured business overdraft
What’s pledged	A registered mortgage over residential or commercial property	No property; usually a general security agreement (GSA) over business assets
Personal guarantee	Often, especially if the property isn’t the company’s	Almost always, from every director
Where it’s registered	On the property’s record of title (LINZ), plus often a GSA on the PPSR	On the PPSR
Typical limit	Larger, capped by property equity and cash flow	Smaller, sized on turnover and bank statements
Running cost	Lower	Higher
Set-up cost	Higher: valuation, legal work, registration	Lower: mainly an establishment fee
Time to arrange	Longer	Shorter
Exit	Mortgage must be discharged by a lawyer	Close the facility; GSA released

That middle column surprises a lot of shoppers. “Unsecured” describes the property, not the paperwork. The PPSR explains that almost any item of value can secure a debt, except land, buildings and large ships, and that registering gives a creditor priority over anyone who registers later. A typical GSA behind an unsecured overdraft covers all present and after-acquired personal property: stock, vehicles, debtors, the lot. The PPSR glossary notes that this collateral type doesn’t even need a description on the register, which shows how broad it is.

Which stalls sell which kind of overdraft?

• Main banks. The classic secured bank overdraft lives here, attached to your transaction account and often tied to a home loan you already hold with them. Smaller limits may be offered unsecured to established customers. See main banks.
• Smaller banks. Similar products, sometimes more flexible on who the security belongs to or how the business is structured.
• Non-bank and online lenders. These rarely offer a true overdraft. Instead they sell an unsecured line of credit you draw into your account, sized on bank-statement data, and often charging a fee per draw rather than a fee on the limit. Our page on lines of credit and overdrafts covers how the two products differ.
• Private and second-mortgage lenders. Occasionally a revolving facility secured on property when the banks have said no. Useful as a bridge, rarely cheap to keep for years.

How big an overdraft can my business get?

On the secured side, two limits apply at once. The lender will only lend up to a share of the property’s value, minus any mortgage already on it, and it still needs to see that the business can carry the facility from cash flow. Equity alone won’t get you a big limit if your bank statements can’t support it.

Unsecured, the limit is set almost entirely by trading: turnover, how steady it is, existing debts and your conduct on current accounts. For an unsecured overdraft in NZ, think in terms of what a few weeks of turnover looks like, not what your house is worth.

Either way, resist the biggest number offered. Facility fees are usually charged on the limit, used or not, so a limit $30k higher than your forecast peak is $30k of headroom you pay for every month.

What does each overdraft really cost in dollars?

This is where the shopping gets interesting. Secured facilities usually cost less to run but more to set up, so the answer flips depending on how long you keep the facility. Here’s how to compare three offers properly.

Illustrative example. A clothing boutique in Nelson carries an average overdrawn balance of about $30k across the year, peaking near $55k when winter and Christmas stock lands. The owner collects three offers. All figures below are invented for illustration and are not quotes.

Cost item	A: Bank, secured on owner’s home, $80k limit	B: Bank, unsecured with GSA and guarantee, $60k limit	C: Online line of credit, unsecured, $60k limit
Facility fee (on the limit) per year	$960	$900	$0
Interest on a $30k average balance per year	$2,400	$4,200	$5,100
Draw fees per year (about 20 draws)	$0	$0	$900
Set-up: valuation, legal, registration, establishment	$2,500	$300	$0
Year one total	$5,860	$5,400	$6,000
Two-year total	$9,220	$10,500	$12,000
Add mortgage discharge if closed at year one	about $400	n/a	n/a

Three lessons sit inside that table:

1. Year one can favour unsecured. Offer A’s set-up costs swallow its running-cost advantage for the first twelve months. Close it after a year and, with the discharge, it’s the dearest bank option.
2. Time favours secured. By year two, Offer A is ahead by more than $1,000 against B, and the gap widens every year after.
3. Headroom has a price. Offer A charges its facility fee on $80k, but the boutique never draws past $55k. Asking for a $60k secured limit would trim that fee straight away.

Run your own numbers the same way: average balance, every fee in dollars, set-up and exit, over the time you’ll really keep it. Our offer comparer does the adding up, and the total cost of finance page explains each line.

Weighing up a secured facility against an unsecured one right now? Check your options with us. It’s a quick enquiry, and asking won’t put a mark on your credit file.

What does a business overdraft secured against your house really put at risk?

The dollar table can’t show this part. When a lender takes a mortgage over your home, it’s registered on the property’s record of title. Toitū Te Whenua LINZ lists a mortgage as one of the rights recorded against a property, and recommends using a lawyer to discharge one once it’s paid off. Three practical consequences follow:

• The mortgage may reach further than the overdraft. Many bank mortgages are written to secure all money you owe that lender, now or later: the overdraft, the home loan, a credit card, a vehicle loan. Ask the lender plainly whether this mortgage secures only the overdraft or everything. The answer matters when you later want to refinance one piece elsewhere.
• Your home equity is spoken for. Equity pledged to an overdraft limit is equity you can’t easily use for something else, even when the overdraft sits at zero.
• Leaving takes paperwork. Moving to another lender means arranging the new facility, clearing the old one and having the mortgage discharged. Budget the legal cost and the time.

If someone else owns the property, such as a partner or a family trust, they’ll usually need to sign a guarantee and get independent legal advice. Plan for that in your timeline rather than discovering it a week before stock needs paying for.

What should you watch with an unsecured overdraft?

Unsecured doesn’t mean low-commitment. Check three things before you sign.

• The guarantee. Is it unlimited, or capped at the overdraft limit plus costs? A capped guarantee is a fair thing to ask for, and our guide to negotiating business loan terms has the wording.
• The GSA’s reach on the PPSR. Registrations rank by date, so a broad GSA can make the next lender, say an equipment financier, ask your overdraft provider for a subordination agreement before it will lend. The PPSR’s registration guidance also notes a financing statement runs for up to five years and can be renewed, so it can outlive a facility you thought you’d closed. Search the PPSR under your company name once a facility ends and ask for any stale registration to be removed.
• The price of convenience. business.govt.nz cautions owners to “be wary of offers of fast or unsecured financing”, noting they’re often easier to get but cost more. In our example that showed up as roughly $1,800 a year more interest on the same balance. Our page on unsecured business loans goes further into how these are priced.

Which should you choose?

A simple rule of thumb from the market floor:

• Choose secured if you’ll keep the facility for two years or more, you need a limit larger than your turnover alone supports, and you’re comfortable with your property backing the business. Get the mortgage limited to the overdraft if you can.
• Choose unsecured if the need is seasonal or short-lived, you’d rather keep your home separate, or you expect to outgrow the facility and refinance within a year or so.
• Consider both in sequence: an unsecured facility now to bridge a season, then a secured, larger limit once the business has the statements to justify it. Our property-secured business loans page covers what lenders look for on that side.

Ready to find the right overdraft for your business?

Choosing between a secured and an unsecured overdraft is really a question of how much of your property you want behind your working capital, and for how long. That’s the kind of trade-off we talk through with business owners every week.

Telling us what you’re after takes about a minute. Your credit file stays untouched while you find out what’s possible, and your details aren’t passed around a crowd of lenders, so your phone stays quiet. A real lending specialist reads your enquiry, looks at your security, turnover and timing, and calls you to suggest the stall that suits. Please fill the form in accurately, especially the limit you need, who owns any property and your average monthly turnover, so the first option we bring you fits.

Find out where you stand →