Quick answer
A business term loan is a lump sum borrowed for a set period and repaid in regular instalments. In New Zealand, term loans come from banks, non-banks, finance companies and online lenders, either secured against property or business assets, or unsecured for trading businesses. They suit one-off needs such as equipment, fit-outs, expansion or refinancing. Shop them by matching the term to the purpose and comparing total cost, security and early repayment terms.
Key points
- A lump sum, repaid over a fixed term in regular instalments.
- Available secured or unsecured, from almost every stall in the market.
- Match the term to the life of whatever you're funding.
- Compare total cost, security and exit terms, not just repayments.
Walk along the lending shelves and the term loan is the item every stall stocks. It’s the bread and milk of business finance: simple, widely available and useful for a lot of things. That familiarity is exactly why it pays to shop it carefully, because the same basic product can be packaged in very different ways.
What is a business term loan?
You borrow a lump sum, then repay it in regular instalments over an agreed term. Each repayment usually covers interest and some of the amount borrowed, so the balance falls over time. Some term loans have interest-only periods, a balloon at the end, or a mix of fixed and floating pricing, but the basic shape is the same.
business.govt.nz lists secured loans and cash-flow loans among the main ways New Zealand businesses fund themselves. Both are usually term loans; the difference is what backs them.
Which stalls sell term loans?
| Stall | Typical term loan | Shopper’s note |
|---|---|---|
| Main banks | Secured over property or business assets, longer terms | Lowest cost if you fit policy; slower process |
| Smaller banks | Often property-secured | Similar standards, sometimes more personal |
| Non-bank lenders | Secured or unsecured, shorter to medium terms | Flexible on history and documents; higher cost |
| Finance companies | Asset-backed or general security | Practical, quick on common purposes |
| Online lenders | Unsecured, short terms, frequent repayments | Fast; check repayment rhythm and fees |
| Private lenders | Property-secured, short terms | Fast; need a clear exit plan |
What should you match the term to?
The golden rule is to match the term to the life of what you’re funding:
- Short-lived needs such as stock for a contract or a seasonal gap suit short terms, so you’re not still paying long after the benefit has gone.
- Equipment and vehicles suit terms that roughly match their useful working life.
- Fit-outs suit terms linked to the lease length.
- Buying a business or premises suits longer terms, often with property security.
A term that’s too short squeezes cash flow with big repayments. A term that’s too long means you pay more in total and may still owe money when the asset needs replacing.
Secured or unsecured: which shelf?
Secured term loans use property or business assets as security. They usually allow larger amounts and cost less per dollar. Property-secured business loans through our lending partners range from $20,000 to $5,000,000. Unsecured term loans rely on the business’s trading and the directors’ guarantees; for trading businesses these are typically $5,000 to $500,000, sized on turnover and bank statements.
The trade-off is risk. With property security, your property is on the line if things go wrong. Our pages on property-secured loans and unsecured loans explore each shelf.
Not sure which suits you? A 60-second enquiry gets a real person’s view, with no credit check.
What costs come with a term loan?
Beyond the price of the money, look for:
- establishment and documentation fees;
- legal and valuation costs for secured loans;
- monthly or annual account fees;
- PPSR registration fees where business assets are secured;
- early repayment or break costs; and
- default charges if repayments are missed.
Add them up with the repayments to find the total cost of finance, then divide by the amount borrowed for the cost per $1,000. The offer comparer does the sums for up to three offers.
What does a sensible term loan shop look like?
Illustrative example. A Napier dental practice needs $220,000 to fit out two new treatment rooms. The lease has seven years left. The bank offers a five-year loan secured over the practice’s equipment with a general security agreement, plus director guarantees. A finance company offers four years secured only over the new equipment. An online lender offers 18 months unsecured. The online loan’s repayments would strain cash flow for a fit-out that will earn over many years, so the practice compares the first two. The bank is cheaper per $1,000; the finance company keeps other assets free. The practice negotiates the bank’s guarantee down to a capped amount and accepts.
What questions should you ask about a term loan?
- Is the pricing fixed, floating, or a mix? What happens at the end of any fixed period?
- Are there interest-only periods or a balloon?
- What security and guarantees are required?
- Can I make extra repayments without a fee?
- What would early repayment cost in dollars at a realistic point?
- What covenants or reporting conditions apply?
Our list of questions to ask a lender has more.
Fixed or floating pricing?
Some term loans let you fix the price for a period; others float with the market. Fixing gives certainty for budgeting but can bring break costs if you repay or restructure during the fixed period. Floating gives flexibility but repayments can rise. Some lenders offer a split. There’s no universal right answer; it depends on how settled your plans are and how much repayment movement your cash flow can handle.
When is a term loan the wrong product?
If your need goes up and down from month to month, such as covering wages while customers pay late, a line of credit or overdraft may suit better, because you only pay for what you use. If the need is tied to unpaid invoices, invoice finance can be a better fit. A term loan works best for a known amount, a known purpose and a known repayment plan.
Ready to pick a term loan off the shelf?
Tell us the amount, what it’s for and how long you’d like to repay. Enquiring is free and doesn’t touch your credit file. We won’t spread your enquiry across every lender in the country; one specialist looks at your situation and calls you. Accurate answers on the form mean the term loan we help you find suits your purpose from day one. See if you qualify.
Frequently asked questions
What can a business term loan be used for?
Almost any business purpose: equipment, vehicles, fit-outs, stock for a big contract, expansion, buying a business, refinancing other debt or consolidating facilities. It suits one-off needs better than ongoing, fluctuating ones.
How long is a typical business term loan?
Terms range from a few months for short-term or online loans to several years for bank and property-secured loans. The best term usually matches how long the thing you're funding will earn money for the business.
Should I choose a secured or unsecured term loan?
Secured loans usually cost less per dollar and allow bigger amounts, but put property or assets at risk. Unsecured loans are quicker and keep property out of it, but cost more and are usually smaller. Your choice depends on what you can offer and how you feel about the risk.
Can I repay a term loan early?
Usually, but there may be an early repayment fee or break cost. Ask for a dollar example before signing, particularly if you might sell an asset or refinance.