The short answer first
A business loan is a lump sum you borrow once, repay over a fixed term, and it's done. A business line of credit NZ providers offer is a revolving facility — you have a credit limit, you draw what you need when you need it, and you only pay interest on the funds you've actually drawn. Both are useful. They're useful for different things.
The simplest way to think about business loan vs line of credit NZ: a business loan is for a specific, defined need with a known cost. A line of credit is for ongoing or unpredictable cashflow needs where you don't know in advance exactly how much or when you'll need it.
How a business loan works
You borrow a lump sum — say $80,000 — and repay it over a fixed term, typically 12 to 60 months. Repayments are fixed (weekly, fortnightly, or monthly depending on the lender), and they include both principal and interest. The loan is paid off completely at term end. If you need more money later, you apply again.
Business loans suit specific, defined needs: refurbishing a premises, funding a marketing campaign, paying a tax debt that's been arranged, buying inventory ahead of a known busy period, hiring ahead of a contract. The cost is transparent — you know upfront exactly how much you're paying and over what period. There are no surprises.
How a business line of credit NZ works
You're approved for a facility limit — say $50,000. You don't have to draw any of it. You draw funds as you need them, and interest only accrues on what you've actually drawn. Most NZ business line of credit products charge a small weekly service fee on the facility limit (regardless of usage) — typically around 0.046% of the facility per week. So a $50,000 facility costs around $23 per week in service fees even if you never draw a cent.
When you draw funds, you pay interest on the drawn amount. As you repay, the funds become available again to redraw during the term — usually a 24-month renewable facility. At term end, any outstanding balance gets paid off via an extended payment plan (typically 2 years).
The flexibility is the value. If your cashflow has cycles — slow weeks followed by big payments, or seasonal income — a line of credit smooths that out without requiring you to carry the full borrowed amount on your books.
Practical example: A trades business with $40K/month average income but variable timing on customer payments uses a $50K business line of credit NZ. They draw $15K to cover payroll when an invoice payment is delayed, repay it when the customer pays, then redraw $8K two weeks later for a stock order. Total interest paid is much less than carrying a $50K business loan for the same period — because they only paid interest on what they actually used.
The cost difference between business loan vs line of credit NZ
Comparing total cost between business loan vs line of credit NZ is harder than it looks because the two products charge differently.
A business loan typically charges interest as an Annual Simple Rate (ASR) calculated on the original loan amount, plus an origination fee built into the structure. You pay the same total cost regardless of what you do with the money once it's drawn.
A business line of credit NZ providers offer charges interest on a daily basis only on the drawn balance, plus the weekly service fee on the facility limit. If you barely use the line, total cost is low. If you draw the full facility and hold it for the full term, cost can exceed an equivalent business loan.
Rule of thumb: if you'll use less than about 50% of the facility most of the time, a line of credit is cheaper than an equivalent business loan. If you'll be near-fully drawn for most of the term, a business loan is usually cheaper.
Eligibility — what's different
The eligibility difference is meaningful. Most NZ business line of credit lenders require minimum 2 years trading. Most business loans go down to 6 months trading (with smaller amounts and tighter terms for newer businesses). So if your business is in its first or second year, a line of credit may not be available — but a business loan probably will be.
Beyond trading time, the criteria are similar: $55K+ monthly turnover for matrix pricing, NZ resident, clean credit, active NZBN, GST registration for amounts above $20K. Property security comes into play above $150,000 for both products.
Repayment shape
Both products have weekly repayments in the unsecured market. The shape is different.
Business loan repayments are fixed and predictable. The same amount comes out every week for the term of the loan. Easy to budget, no surprises.
Line of credit repayments scale with what you've drawn. If you draw $10K out of a $50K facility, your weekly repayment reflects that drawdown. If you redraw funds later, repayments adjust. Less predictable but more responsive to actual usage.
Setup fees and ongoing costs
Business loans usually have an origination fee — typically 3–4% of the loan amount, built into the loan structure. You pay this once, at the start.
Business line of credit NZ products typically have $0 origination fee but charge the ongoing weekly service fee. So a line of credit has lower upfront cost but ongoing carrying cost. A business loan has higher upfront cost but no carrying cost beyond the regular interest.
When a business loan is the right answer
Choose a business loan when:
- You have a specific, defined need with a known cost
- You'll use most or all of the funds immediately
- You want predictable, fixed weekly repayments
- You're under 2 years trading (line of credit may not be available)
- The use is one-off rather than ongoing
When a business line of credit is the right answer
Choose a line of credit when:
- Cashflow is variable or seasonal
- You can't predict exactly when or how much you'll need
- You want capital available for opportunities that come up
- Your business is 2+ years trading and meets standard criteria
- You'll likely use less than half the facility most of the time
Can you have both?
Yes. Many established NZ businesses run a business loan for a specific known need (like a major one-off project or refinance) alongside a business line of credit NZ facility for working capital. The loan handles the lump sum work; the line of credit handles the cashflow rhythm. As long as both are serviceable on the business's revenue, both can be approved — and most lenders will consider concurrent applications.
The broker advantage
Business loan vs line of credit NZ is a structural decision more than a product comparison. The right answer depends on the cashflow shape of the business, not just the loan amount. A broker who understands both products can match the structure to the situation rather than just submitting whatever you ask for. That matters because the wrong product fit costs money — either through unnecessary interest on funds you didn't need, or through ongoing service fees on a facility you barely use.