When borrowing can make sense
It’s a big decision — and the timing matters. Borrow too early and you might end up paying interest you didn’t need to. Wait too long and you could miss the chance to grow. Here’s how to think about when a loan makes sense, and when you might be better off holding off.
1. You’ve spotted a genuine growth opportunity
Maybe you’ve been offered a contract that will double your turnover, but you need to buy more stock or hire extra hands to deliver. In cases like these, a loan can turn opportunity into reality. The key question is: Will the return outweigh the cost of the borrowing?
If you’re confident the growth will cover repayments — and you’ve stress-tested that cash flow — a loan can be a powerful enabler.
2. You’re managing seasonal cash-flow gaps
Many New Zealand businesses deal with seasonal swings — tourism, construction, agriculture, even retail. A short-term working-capital loan can smooth out those dips, keeping staff paid and suppliers happy until income picks up again.
Xero’s Small Business Insights show that NZ SMEs are typically paid 23 days late on average, which can cause painful cash-flow squeezes. In that kind of environment, a line of credit or short-term facility can be a smart buffer.
3. You need to upgrade equipment or technology
New equipment can increase efficiency and reduce costs over time. For example, a trades business might finance new tools or vehicles, or a café might invest in energy-efficient appliances. As long as the upgrade saves you more than the loan costs, the numbers can stack up well.
4. You want to build business credit
If you plan to borrow larger amounts later (say for expansion or premises), taking out and successfully repaying a smaller loan can help you establish credit history. It’s a good way to show lenders you can manage debt responsibly.
When it might be better to wait
1. Your cash flow is too tight to cover repayments
If you’re already struggling to pay bills, taking on more debt may just add pressure. It’s often better to review expenses, chase late payers, or negotiate with suppliers first. A short-term loan won’t fix a long-term imbalance.
2. You’re not clear on how you’ll use the funds
Borrowing without a clear purpose — or a forecast showing what the funds will achieve — can quickly lead to waste. Before you apply, be specific: how much do you need, what for, and what’s the expected return?
3. You haven’t compared your options
Not all loans are equal. Term loans, lines of credit, equipment finance — each has different costs and flexibility. Always compare interest rates, fees, repayment terms and total cost of borrowing.
4. You’re reacting to short-term stress
It’s easy to feel pressure when cash is tight, but reacting too quickly can lock you into an expensive loan. If the issue is temporary — say, a one-off slow month — you might be better off talking with your accountant or adjusting operations before committing to new finance.
A quick self-check before you borrow
Before deciding, ask yourself three questions:
- Will the loan help me make more money or run more efficiently?
- Can I comfortably make repayments even if sales dip by 10–20 percent?
- Do I understand all the fees, terms, and total cost?
If you can tick all three, you’re probably on the right track.
