The short answer
Commercial loan terms are the words lenders use to describe how a business loan is secured, priced and repaid. Key New Zealand terms include LVR (loan-to-value ratio), first and second mortgage, caveat, PPSR registration, general security agreement, personal guarantee, establishment fee, default interest, serviceability and IRD terms such as use-of-money interest.
How to use this business loan glossary
Loan offers are written in a language of their own. Words like LVR, GSA, caveat and default interest decide how much you pay and what’s at risk, yet they’re rarely explained. This glossary covers more than 50 commercial loan terms New Zealand business owners commonly meet, each in a sentence or three.
Terms are listed A to Z. Where we have a detailed page on a topic, the term links to it. For the big picture, see our guide to the types of business loans in NZ.
A
Amortisation. Paying a loan down gradually through regular repayments that cover both interest and principal, so the balance reaches zero by the end of the term.
Annual return. A yearly filing every New Zealand company must make with the Companies Office to confirm its details. Lenders check that annual returns are up to date.
Arrears. Payments that are overdue. Arrears on a loan, or with Inland Revenue, are one of the first things a lender looks for.
Asset finance. Finance where the asset being bought, such as a ute, truck or machine, is the main security. See asset finance.
B
Balloon payment. A larger lump-sum payment due at the end of a loan, often used in asset finance to lower regular repayments.
Bank statements. The record of money in and out of your business account. For unsecured loans, they’re often the main evidence of how your business trades.
Break cost. A charge for repaying a fixed-rate loan before the fixed period ends, covering the lender’s loss on the fixed funding.
Bridging loan. Short-term finance that covers a timing gap until expected money arrives, such as a property sale. See business bridging loans.
Broker. A specialist who assesses your situation and matches you with a suitable lender. A good broker matches you to one lender rather than sending your file to many.
C
Capitalised interest. Interest added to the loan balance instead of being paid as it falls due. You pay interest on it later, so the total cost rises.
Cash flow loan. An unsecured loan sized on your business’s trading cash flow rather than its assets. See cash flow loans.
Caveat. A notice lodged on a property’s Record of Title through LINZ that warns others someone claims an interest in it. Some short-term lenders lodge a caveat instead of a registered mortgage. See caveat loans.
Credit enquiry. A record on your credit file made when a lender checks your credit as part of an application. Several in a short time can count against you.
Credit file. The record of your borrowing and repayment behaviour held by New Zealand’s credit reporting agencies: Centrix, Equifax and Experian.
Credit score. A number, usually out of 1,000 in New Zealand, that summarises your credit file. Higher is better.
D
Debtor finance. Another name for invoice finance: funding advanced against your unpaid customer invoices. See invoice finance.
Default. An overdue debt that has been reported to a credit reporting agency. Defaults generally stay on your credit file for five years from when they were recorded, even after payment.
Default interest. A higher interest charge that applies when you miss payments or breach loan terms. Always check how it’s calculated before you sign.
Discharge. The formal removal of a mortgage, caveat or PPSR registration once the debt is repaid.
E
Early repayment cost. A fee or minimum interest charge for paying a loan off before the agreed date. Look for it in every offer.
Equity. The value of a property or asset minus what you owe on it. Equity is what you borrow against with a second mortgage. Try our equity calculator.
Establishment fee. A one-off fee charged by a lender to set up a loan, often deducted from the loan amount at settlement.
Exit strategy. How a short-term loan will be repaid, such as from a property sale, a contract payment or refinancing. Private lenders put a lot of weight on it.
F
Financing statement. The registration a secured lender lodges on the PPSR to record its interest in personal property, such as vehicles or equipment.
First mortgage. The main registered mortgage on a property, with first claim on sale proceeds. See first mortgage.
Fixed rate. An interest rate that stays the same for an agreed period, giving predictable repayments.
G
General security agreement (GSA). Security over all of a business’s present and future personal property, such as stock, equipment and receivables, registered on the PPSR.
GST. Goods and Services Tax, charged at 15% in New Zealand and collected on Inland Revenue’s behalf. GST arrears are a common reason to borrow. See GST debt loans.
Guarantor. A person who agrees to repay a loan if the borrower can’t. In small business lending, it’s usually the directors.
I
Instalment arrangement. An agreement with Inland Revenue to pay overdue tax in instalments over time.
Interest-only. A repayment structure where you pay only the interest for a period, with the principal repaid later in a lump sum or by refinancing.
Invoice finance. See debtor finance.
IRD. Inland Revenue, New Zealand’s tax authority, often still called IRD. See IRD debt loans.
L
Line of credit. A facility with a set limit you can draw, repay and redraw, paying interest only on what you use. See business line of credit.
LINZ. Land Information New Zealand, which keeps the records of title for land and property. Mortgages and caveats are registered or lodged through LINZ.
Loan-to-value ratio (LVR). The loan amount divided by the value of the property securing it. A lower LVR usually means lower risk and sharper pricing.
Low doc loan. A loan that needs fewer financial documents, using bank statements or an accountant’s letter instead of up-to-date accounts. See low doc business loans.
M
Merchant cash advance. A lump sum repaid as a share of your future card and EFTPOS takings. See merchant cash advance.
Mortgagee sale. The sale of a property by a lender to recover a loan that hasn’t been repaid.
N
Non-bank lender. A lender that isn’t a registered bank, such as a finance company or private lender. Non-bank lenders often move faster and take a more flexible view.
NZBN. The New Zealand Business Number, a unique identifier for your business. Lenders often ask for it.
O
Official Cash Rate (OCR). The interest rate set by the Reserve Bank of New Zealand that influences wholesale funding costs and, indirectly, loan pricing.
Overdraft. A revolving facility attached to a business bank account that lets you go below zero up to a limit. See business overdraft alternatives.
P
PAYE. Pay As You Earn, the tax employers deduct from wages and pay to Inland Revenue. PAYE arrears are treated seriously.
Personal guarantee. A promise by a director or owner to repay a business loan personally if the business can’t.
PPSR. The Personal Property Securities Register, the public register where lenders record security over vehicles, equipment, stock and other personal property.
Prepaid interest. Interest for some or all of the loan term deducted up front from the loan advance, common with short-term private loans.
Principal. The amount you borrow, not counting interest and fees.
Private lender. A non-bank lender, sometimes funded by private investors, that lends on more flexible criteria. See private business lenders.
Provisional tax. Income tax paid in instalments during the year based on expected income. See provisional tax funding.
R
Record of Title. The official LINZ record showing who owns a property and what mortgages, caveats and other interests are registered against it.
Refinance. Replacing an existing loan with a new one, often to get better terms, release equity or move from a short-term private loan to cheaper long-term finance.
Registered mortgage. A mortgage formally registered on the Record of Title through LINZ, giving the lender a legal security interest in the property.
S
Second mortgage. A mortgage that ranks behind the first mortgage on a property, letting you borrow against the equity without disturbing your bank loan. See second mortgages.
Security. An asset a lender can claim if a loan isn’t repaid, such as property, vehicles or business assets.
Serviceability. A lender’s assessment of whether your business can afford the repayments.
Settlement. The day a loan is finalised and the money is paid out, or a property changes hands.
T
Term. The length of time over which a loan is repaid.
Term loan. A lump-sum loan repaid over a fixed term, as opposed to a revolving facility.
Trade finance. Funding that pays suppliers before your customers pay you. See trade finance.
U
Unsecured loan. A loan with no specific asset as security, assessed mainly on your trading. Often still involves a personal guarantee. See unsecured business loans.
Use-of-money interest (UOMI). Interest Inland Revenue charges on tax paid late or underpaid, separate from late payment penalties.
V
Valuation. An independent assessment of a property’s or asset’s value, used to set how much a lender will advance.
Variable rate. An interest rate that can move up or down during the loan, usually with flexible early repayment.
W
Working capital. The money a business uses for day-to-day operations: stock, wages and bills. See working capital loans.
Putting the terms to work
Knowing the language helps you compare offers properly. When you read a loan offer, look first at the security, the total cost (rate plus every fee), the early repayment cost and the default interest. Then line offers up side by side with our compare loan offers tool, or read our guide to comparing business loans.
Next step
Got an offer you can’t decode, or need funding fast? LoansOne’s experts review every application and match you to the right lender, with every term explained in plain English. Apply in about 30 seconds, free and with no mark on your credit file, or call 09-888 5252.
