Registered mortgage vs caveat: What’s the difference for NZ business loans?

This is not a substitute for legal advice. If you are thinking about a secured loan, we always recommend getting independent advice.

If you’ve ever tried to get a secured business loan in New Zealand, you’ll know it’s not always easy to get money through the banks, no matter how loyal you are and how many accounts you have with them. Banks usually want detailed financial statements, plenty of history, and lots of time to process an application. They’re very risk-averse, which is why they are the cheapest source of business loans. But that risk averseness can be a real barrier when you need cash quickly to grab a business opportunity or manage cashflow. And if you’ve got IRD arrears, your chances of securing funding, even with plenty of equity in your home, are extremely low (see my other blog post about that here.

If you’re not afraid of putting your property up as security, this is where non-bank and second-tier finance companies come in. They’re generally faster and more flexible and there are plenty out there that are happy to lend against your house. And that’s where it’s important to understand the difference between a registered mortgage and a caveat. Both are used to secure business lending, but they work quite differently and have very different implications if something goes wrong.

what is a secured business loan?

A secured business loan is a type of finance where the borrower (you) offers an asset — usually property — as collateral. If the business can’t repay the loan, the lender can use that asset to recover the money owed.

Secured loans often come with lower interest rates and larger loan amounts, because they reduce the lender’s risk. The trade-off is that the your property is on the line if you default.

what is a registered mortgage?

A registered mortgage is the most formal type of property security. It’s registered on the property title with Land Information New Zealand (LINZ), showing that the lender has a legal interest in the property.

From the lender’s point of view, this provides strong protection. You can’t sell, refinance, or transfer ownership of the property without their consent. And if the loan isn’t repaid, the lender has the right to take possession and sell the property to recover the debt.

Because of these strong rights, registered mortgages are typically used for larger or longer-term secured business loans. They require more documentation and due diligence, but they also provide lenders with greater confidence — which can make it easier to borrow bigger amounts.

what is a caveat?

A caveat is a different kind of security notice. Instead of giving the lender full rights to your property, a caveat acts as a warning on the title that someone else (the caveator) has an interest in your property.

When a caveat is lodged, it effectively blocks the property owner from selling or further mortgaging the property until the caveat is lifted or resolved. This makes it a popular option for short-term business loans where speed is crucial and setting up a full mortgage would take too long.

However, a caveat doesn’t allow the lender to automatically sell the property if you default. To get their money back, they would need to apply to the court — a process that’s slower and less certain than enforcing a mortgage. If things are looking dicey, they may contact you about registering a mortgage before things get really bad, which is an indicator to you that you need to act quickly to get your loan repayments back on track, or refinance your loan.

registered mortgage v caveat, the main differences

WHAT HAPPENS IF YOU DEFAULT ON A SECURED BUSINESS LOAN?

If your loan is secured by a registered mortgage, the lender can move fairly quickly to enforce it. They’ll issue a demand for repayment, and if that’s not met, they can proceed with a mortgagee sale. The property is sold, the lender gets their money back, and any surplus funds go to you.

If the loan is secured by a caveat, it’s a different story. The lender can stop you from selling or refinancing the property, but they can’t simply sell it themselves. They’d need to apply to the court for a charging order or other enforcement method. This makes caveats less powerful but also less intrusive than mortgages.

WHICH OPTION IS RIGHT FOR YOUR BUSINESS?

We can’t tell you what is right for your business, and our advice if you are thinking about secured borrowing is to get advice first. But if you’re exploring property-backed business finance, the right type of security depends on your situation, and may ultimately be dictated to you by your lender:

• Registered mortgages are usually for long-term borrowing or larger loan amounts where the lender needs stronger protection.

• Caveats work well for smaller, short-term, or bridging loans where speed and flexibility are the priority.

FINAL THOUGHTS

Understanding the difference between a registered mortgage and a caveat is crucial before you agree to any secured business loan in New Zealand. Both can be effective tools for accessing funding, but they carry very different rights and obligations for you and your lender.

Before signing anything, always get independent legal and financial advice. Knowing exactly what you’re agreeing to will protect both your property and your business down the line.

And if you need a secured business loan and the bank has said no, we have a range of lenders that will be happy to look at your application. Contact us to find out more.

Need a business loan but got IRD debt?

Banks in Aotearoa New Zealand are increasingly unwilling to lend to businesses that have debt with Inland Revenue (IRD), even when a payment arrangement is in place.

IRD debt creates heightened risk that banks won’t tolerate. This is due to current climate of aggressive tax debt enforcement. As at 31 March 2025, NZ is $9.3billion behind in it’s payments to IRD. There are record levels of liquidations – 134 in the first quarter of this year, up 68% on the previous year. There is significant government funding aimed directly at tax compliance and debt recovery. For more information, see here.

Why banks avoid lending to businesses with IRD debt

It’s a big red flag for lenders: IRD debt is viewed as an immediate red flag for most lenders in New Zealand. Many banks and even some alternative lenders will decline applications from businesses with unresolved IRD arrears or will require that the IRD debt is repaid before they will lend, even if a payment plan is in place. Here’s why –

• Risk perception - arrears with IRD are seen as an indicator of financial stress or poor management, signaling to banks that a business may struggle to meet further debt obligations. This increases the perceived risk, especially for unsecured business loans.

• Liquidation threat - As IRD becomes more assertive in recovering debts, banks fear that a business with tax arrears is vulnerable to the IRD swooping in and appointing the Official Assignee as a liquidator. All of a sudden, there’s no revenue to pay your bank debt, and any money the OA recovers will go to IRD, not the bank.

• They think you’re managing your business poorly - Not paying tax could indicate to a bank that you are failing to manage your business prudently. If your tax is behind, they may feel that your financial accounts are unreliable too. Remember, banks can get a good gauge from your bank activity how disciplined you are with your business’s money.

How do you stay on top of your taxes and keep the Official Assignee from visiting?

First, if you have debt, contact IRD. Seriously. They love it when you contact them and offer them a payment arrangement. This takes the heat off you, and onto someone else who is burying their head in the sand.

Second, put in place some procedures that help you to stay on top of things, such as:

• Lining up your tax arrears repayment with when your bank account has the most money in it

• Arrange an overdraft as a safety net, to avoid any bounced payments to IRD or other lenders – because reversed payments prevent you from getting future borrowing, even with second-tier finance companies

• Sweep GST into a savings account when you receive payments or have banked cash sales

• Keep on top of PAYE by paying it when you submit your PAYE return

• Put money aside for provisional and income tax whenever you can

If you have tax arrears and want to get business funding, here are a few key points:

• You need to be transparent with your lender – show them your payment arrangement documentation and be open about any payments you’ve missed

• Most lenders will treat your IRD debt like any other loan, when calculating how much they will lend you.

• As tax debt is a risk factor, be prepared to pay a higher interest rate; which on top of other factors like poor credit can mean paying quite high rates.

tax debt: the bottom line

It’s not impossible to get business loans and funding when you have IRD arrears … just don’t expect your bank to be on board, even if you have existing business with them such as a home loan (with good equity). If you have arrears, get a payment arrangement in place and show good discipline in your bank accounts before applying for finance. And contact us to talk about your finance needs – every funder has different products and application criteria so we can easily find a funder that will suit you and your business.

What the heck does 'capitalising interest' on secured loans mean?

So, you're looking into secured business loans secured by property and hear the term "capitalising interest." Sounds a bit scary, right? Don't let the jargon scare you!

In simple terms, it means you're not making any loan repayments for a set period (usually the first three to six months), but the interest and any applicable fees for that time don't just disappear. Think of it like a tab at a restaurant: you don't pay for your drinks as you go, but at the end of the night, everything is added up, and you pay the total. With loan capitalisation, your tab is closed after six months and instead of paying it then and there, you then begin making repayments on that bigger balance.

How does interest capitalisation actually work?

Imagine you take out a business loan with a first or second mortgage on your property. The agreement includes a six-month interest capitalisation period. For those first six months, you don't make any payments. Sounds great, right?

But here's the catch: at the end of that six months, the interest that would have accrued is calculated and added to your original loan amount along with any of the up front fees. So, your new, bigger loan balance is what you start paying interest on, and start making repayments on. Or you have the option of refinancing the loan elsewhere and paying off the new loan balance in full (original amount borrowed, fees and six months’ worth of interest).

Why would a business want to capitalise a loan?

Now, you might be thinking, "Why would anyone want a bigger loan?" Well, there are actually some pretty valid reasons:

• Cash flow cushion: This is the big one. For new businesses, those first few months can be tight. Capitalising interest frees up crucial cash to invest in getting off the ground – think marketing, inventory, and those essential first hires. It's like having a financial safety net when you need it most.

• Navigating the ups and downs: Businesses with seasonal income, like tourism operators, might borrow money during the low season to carry out repairs and maintenance, and pay staff holidays. Capitalising interest helps them manage their cash flow when revenue is low and then start repaying when the busy season kicks in and the money's rolling in again.

• Big projects, big spends: If you're investing in a major expansion, like building a new factory or buying a massive piece of equipment, capitalising interest can give you breathing room. You can focus your funds on the project itself and start repayments once the new asset is up and running and generating income.

• Weathering a storm: Sometimes, unexpected economic hiccups happen. Capitalising interest can offer a temporary reprieve, allowing your business to ride out a short-term downturn without the added pressure of loan payments. It can be a lifeline to keep things afloat until the economy bounces back.

• Strategic moves: Businesses waiting for a big payout, like the sale of an asset or payment on a large contract, might opt for this. It lets them cover immediate costs without having to scramble for funds, knowing a significant cash injection is on its way.

• Growth mode: If you're anticipating a surge in business, you might capitalise interest to invest heavily now – hiring more staff, boosting marketing, increasing stock – to take full advantage of the upcoming boom. You're betting that future profits will easily cover the slightly larger loan.

• Smooth transitions: Businesses undergoing big changes, like shifting their business model or expanding into new markets, can face temporary revenue dips. Capitalising interest provides a financial buffer to navigate these transitions without immediate repayment pressure.

• Debt makeovers: When consolidating multiple debts, having a period of capitalised interest can simplify the initial stages of your new financial structure, giving you time to get everything sorted before repayments begin.

• Supply chain survival: Facing a temporary disruption in your supply chain can seriously impact sales. Capitalising interest offers a bit of breathing room to find alternative solutions and keep your business going until things get back on track.

But it's not all sunshine and rainbows: the downsides of interest capitalisation

While capitalising interest on your business loan can be helpful, it's not a magic bullet. Here are the potential pitfalls:

• Bigger loan, bigger repayments (eventually): This is the most obvious one. By adding the interest to your principal, you end up borrowing more money overall. This means your future repayments will likely be higher, and you'll pay more interest over the life of the loan.

• Extending the debt: Capitalising interest essentially pushes your repayment start date further down the line. This means you'll be in debt for a longer period.

• The interest snowball: Because the capitalised interest starts accruing interest itself, your business’s debt can grow faster than it would with regular payments. It's like interest on interest – a snowball effect that can make the total cost of the loan significantly higher.

• Not a long-term fix: This is crucial. Capitalising interest is a short-term solution for specific situations. If your underlying business isn't healthy or your cash flow issues are chronic, simply delaying payments won't solve the bigger problem. It can actually make things worse in the long run.

• Approval isn't guaranteed: Most lenders will assess your situation carefully before agreeing to capitalise interest. They need to be confident that your business has a solid plan to improve its cash flow and handle the larger future repayments.

The bottom line

Capitalising interest on a business loan can be a valuable tool in specific circumstances, providing crucial cash flow relief when you need it most. However, it's essential to understand the long-term implications. You'll end up paying more interest overall, and it's not a substitute for a sound business strategy. So, weigh the pros and cons carefully and seek independent advice to see if it's the right move for your business's unique situation.

If you’ve got equity in your property and the bank won’t release it, talk to us about a second mortgage with capitalised interest.

Open banking - scary or safe?

You might have heard the term ‘open banking’ before, but a bit murky on what it is.

You might be using it already

Believe it or not, you might have used open banking without even knowing it, for example if you use POLi for paying for something online. Maybe you use it in your business, with the bank feeds into Xero or other accounting software.

Many lenders are using open banking to speed up loan processing. When you get sent a link to click that then asks for your internet banking login and password, you’re entering the world of open banking.

Scary or safe?

For some, entering your online banking credentials to a site that’s not your bank is quite nerve-wracking. Questions come up about what data the lender will see, and where the data is going, and whether the lender you are applying for business finance with, will have ongoing access to your bank accounts.

In this blog post, we explain what open banking is, how it benefits you and your business loan application, and answer some frequently asked questions.

What is open banking?

Open banking is technology infrastructure. The technology is provided by the banks to approved companies, to allow transfer of your transaction data at your request, via an API (application programming interface). An API is basically the code that lets two unrelated systems talk to each other.

The technology is standardised, safe and secure. Any organisation that wants to use these API’s can use them (with the bank’s permission) and know that what they are using is going to be safe for customers.

The key thing with open banking is that you, the customer, give express permission for your banking data to be shared with a third party.

Why use open banking?

Our lives are becoming increasingly digitised. Banks and other institutions hold a lot of information that we’ve given through our actions (eg deposits, payments, transfers). This information is of interest to lenders.

Open banking allows you to say who can access that data. Obviously, banks can’t provide your banking data activity to a finance company without your express consent. By using an open banking portal with the banks’ API, you give this consent with a few keystrokes and clicks of your mouse.

Summary of benefits

• You don’t need to download and send bank statements – quicker to get your loan application underway.

• Increased security –

  • You’re not saving bank statements onto your PC or device.

  • You don’t need to use email to send bank statements.

• Faster processing of your loan application, as the transactions are analysed automatically.

• You provide transaction data right up to today’s date, whereas your most recent bank statement might be a month old.

• Your lender can be certain that you are providing accurate information.

Your questions, answered

Here are some frequently asked questions about connecting your bank statements for your finance company.

Aren’t I breaching my agreement with my bank by sharing my login and password?

No, that’s not the case. If an open banking platform gives you the opportunity to log in using your online banking details, it means that your bank has provided the necessary technology to share your banking transactions. This is the key point: the technology is provided by your bank.

Am I giving the lender access to my bank accounts?

Also no. What happens is that the bank provides a one-time download of transactions to the lender. In some cases, the software will categorise and analyse the transactions and give the lender a summary.

My online banking has my personal accounts as well as my business accounts – do lenders look at my personal banking information?

Generally, lenders are not interested in your personal banking information, unless they need to see proof of personal income. The upside of providing business and personal banking data is that payments to your bank accounts from your business accounts can be cross-checked.

My business banks with more than one bank – do I need another link?

Usually, you can reuse the link that your lender has sent you to connect your other banks. The lender will know who the data is from and which bank it has come from, as that information is part of the data download.

Many of the lenders that we work with will have open banking facilities. Sometimes we will send out the link, and other times it may be automatically sent out from a portal in which we’ve loaded your information to start your loan application.

We think that open banking is a good thing, and we see the benefit with quick turnaround of loan applications with our partner lenders.

Scary or safe? We’re confident it’s safe.

Thinking about finance? Check out what kinds of loans we can help you with here.

Ready to apply? Drop us a line and we’ll be in touch real quick.

Smart funding to relieve growing pains

Smart Funding to Relieve Growing Pains

Ah, the sweet agony of growth. You've poured your heart and soul into your business, and now, it's starting to take off. But with that growth comes a unique set of challenges – those pesky "growing pains" that can quickly turn your excitement into stress.

We're talking about the need to invest, and invest big. Stock levels need a boost to meet rising demand. You need to hire more talented individuals to keep up. Perhaps you're upgrading your technology to streamline operations, or investing in new materials and equipment to improve efficiency.

The problem? All these crucial investments require upfront capital. You need to pay for stock, salaries, software, and machinery before the increased revenue starts rolling in. And let's not forget the lag time – new hires require training and time to become fully productive, impacting your bottom line in the short term.

It's a classic cash flow crunch, and it can stifle even the most promising businesses. So, how do you navigate these choppy waters? Smart funding is the answer. Let's explore some options:

1. Unsecured Business Loans:

• Advantages:

  • Relatively quick approval and disbursement.

  • No need to pledge assets as collateral.

  • Ideal for smaller, short-term funding needs.

• Disadvantages:

  • Generally higher interest rates.

  • Lower borrowing limits compared to secured loans.

  • Strong credit history is usually required.

2. Invoice Finance:

• Advantages:

  • Access to funds tied to your outstanding invoices.

  • Improves cash flow by unlocking capital tied up in receivables.

  • Scales with your sales volume.

• Disadvantages:

  • Can be more expensive than traditional loans.

  • Requires good record-keeping of invoices.

  • Customers may be notified of the financing arrangement.

3. Secured Business Loans:

• Advantages:

  • Lower interest rates compared to unsecured loans.

  • Higher borrowing limits.

  • Suitable for larger investments in assets like equipment or property.

• Disadvantages:

  • Requires collateral, which can be risky.

  • Lengthier approval process.

  • If you fail to meet the loan obligations, your collateral is at risk.

The Human Element: Building Your Team

Growth isn't just about financial investment; it's also about investing in your team. As your business expands, you'll need to find the right people to support your vision. The time spent recruiting, interviewing, and onboarding new employees can be significant, especially when you're already stretched thin.

Alternatively, you may need to promote someone into a leadership or supervisory position. This can be a fantastic move, but it often necessitates training and development to ensure they're equipped for their new role.

Finding the right talent, or upskilling your current talent, takes time, and can be a huge drain on your resources.

That's where our friends at Epic People come in. They can do the heavy lifting for you, handling everything from recruitment and onboarding to leadership development and training. By outsourcing these critical HR functions, you can free up valuable time and focus on what you do best – growing your business.

Navigating Growth Together

Growing pains are a natural part of business expansion. But with the right funding strategy and a strong team, you can overcome these challenges and achieve your goals.

Don't let cash flow constraints hold you back. Explore your funding options, build a talented team, and embrace the exciting journey of growth.

Contact us today to discuss your business loan needs and find the smart funding solution that's right for you.