Quick answer
In New Zealand, a sole trader borrows personally and is fully liable, so lenders focus on their own credit file, income and IR3 returns. A company borrows in its own name, but directors usually give personal guarantees, and lenders check both company and director records. A partnership may need every partner to sign and be checked. Changing structure resets some of your trading history, so lenders will ask how long each structure has traded.
Key points
- Sole traders borrow personally and carry full liability.
- Companies borrow in their own name; directors usually guarantee.
- Partnerships often need every partner to sign.
- Switching structure can reset how lenders count trading history.
Most owners choose their business structure for tax or liability reasons, often years before they need a loan. But the structure you’re in shapes almost every part of a lending application: whose name the loan is in, who signs, whose credit file is checked, which tax returns count and how much trading history the lender sees. Understanding those differences helps you prepare the right evidence and avoid surprises.
Sole traders
As a sole trader, you and the business are the same legal person. When you borrow for the business, you’re borrowing personally.
What lenders check: your personal credit file, your bank statements, your GST returns if registered, and your IR3 returns, which show business income alongside any other income.
Liability: you’re fully liable for the debt. There’s no company to stand between the lender and your personal assets.
What helps: a separate bank account for the business, even though it’s not legally required. It makes your business income far easier for a lender to see. See sole trader loans.
Companies
A company is a separate legal entity registered with the Companies Office. It can borrow in its own name.
What lenders check: the company’s credit file and Companies Office records, its bank statements, GST returns and IR4 returns or financial statements, and each director’s personal credit file.
Liability: the company is liable, but for most small business lending, directors also give personal guarantees. The protection of limited liability is narrower than many owners assume.
What helps: keeping Companies Office records up to date, filing annual returns on time, and making sure shareholder current accounts are tidy. An overdrawn shareholder account can look like money owed back to the company.
Partnerships
A partnership is two or more people or entities carrying on business together. It isn’t a separate legal entity in the way a company is.
What lenders check: each partner’s credit file, the partnership’s bank statements and GST returns, the partnership’s IR7 return and each partner’s share of income.
Liability: partners are generally jointly liable for partnership debts, so a lender will usually want every partner to sign.
What helps: a written partnership agreement that sets out each partner’s share and how decisions are made. Lenders are more comfortable when roles are clear.
Trusts and other structures
Some businesses are owned through trusts or have a company that sits under a trust. Lenders will want to see the trust deed, know who the trustees and beneficiaries are, and usually have trustees sign or guarantee. These structures can be perfectly lendable, but expect more paperwork and longer assessment.
Changing structure
Many New Zealand businesses start as sole traders and later incorporate a company. That’s sensible, but it creates a lending wrinkle: the new company may look like a brand-new business with no history. To avoid that:
- Keep the sole trader GST returns, bank statements and IR3 returns.
- Make the move clean, with a clear date when trading moved to the company.
- Keep the same type of business, customers and suppliers if you can.
- Ask your accountant for a short letter confirming the business is a continuation.
Many lenders will then consider the combined history.
Guarantees: what you’re signing
A personal guarantee means that if the company can’t pay, you will. Some guarantees are limited to a set amount; many are unlimited and cover all the company’s debts to that lender. Before signing, read it carefully, ask whether it can be limited and get independent legal advice, particularly if a spouse or partner is also being asked to guarantee.
An illustrative example
A Taupō couple ran a tourism business as a partnership for four years, then moved it into a company six months ago. They want $70,000 for a new boat engine and marketing ahead of summer. A lender initially sees a six-month-old company. They provide the partnership’s GST returns and IR7 returns, twelve months of bank statements across both structures and their accountant’s letter confirming the company took over the same business. The lender assesses the full four-year history, and both directors give personal guarantees. Illustrative only.
Which structure is best for borrowing?
There isn’t one. A company can make the business look more established and keeps business and personal finances separate, but directors still guarantee. A sole trader’s simplicity can make small loans quick. A partnership can combine two people’s strengths but needs everyone on board. Choose the structure that suits your business and tax position with your accountant’s help, then present it clearly to lenders.
Mixing personal and business money
Whatever your structure, keep business money in a business account. For sole traders, it shows lenders what the business earns. For companies, it avoids messy shareholder current accounts and questions about where money went. It also makes GST and income tax far easier to keep on top of, which in turn keeps your options open.
Look-through companies
Some small New Zealand companies elect to be look-through companies, which means profits and losses pass through to the shareholders for income tax, a bit like a partnership. For lending purposes, the company is still a company: it borrows in its own name and directors usually guarantee. But lenders will want to see both the company’s financial statements and each shareholder’s IR3 return, because that’s where the income is taxed. If you’re a look-through company, mention it early so the lender asks for the right documents.
Joint ventures and shared projects
Some businesses team up for a single project, such as two builders sharing a large job. Lenders may treat a joint venture like a partnership, wanting each party to sign and be checked, or may lend to one party only with the agreement as supporting evidence. A written joint venture agreement that sets out each party’s share of costs and income makes the lender’s job much easier.
Getting the paperwork to match the structure
A surprisingly common hold-up is paperwork in the wrong name: a sole trader’s equipment quote addressed to a company that doesn’t exist yet, a company’s bank account opened in a director’s personal name, or GST registered under the old structure. Before applying, check that the name on your bank account, GST registration, quotes and invoices matches the borrower. Small mismatches can add days of back and forth.
Tell us how you’re set up
Tell us your structure, how long you’ve traded in it and in any earlier form, and what you need. Asking won’t mark your file, your enquiry isn’t passed down a list of lenders, and one real person reads it and calls you back to talk through which lenders suit your set-up. Start your enquiry.
Frequently asked questions
Does a company protect me from a business loan?
Not usually for small business loans. Most lenders ask directors for a personal guarantee, so you can still be personally liable.
I've just moved from sole trader to company. Do I start again?
Many lenders will look at the combined history if the business is the same, but they'll want to see evidence, such as the sole trader GST returns and statements.
Can one partner borrow for the partnership?
Usually lenders want all partners involved, because each is liable for partnership debts.
Which structure makes borrowing easiest?
There's no single answer. Choose the structure that suits your business and tax position, then present it clearly to a lender.