Quick answer
When GST or income tax returns are behind, New Zealand business owners can often still borrow by using residential or commercial property as security, usually through a second mortgage or a non-bank first mortgage. Lenders rely on the property's value and a clear exit plan rather than recent financials. The best approach is to borrow only what's needed, catch up the paperwork during the loan, then refinance to cheaper lending once returns are filed.
Key points
- Property-backed lenders rely on equity and the exit, not recent accounts.
- Second mortgages keep your existing home loan in place.
- Use the loan term to catch up returns.
- Plan the refinance or repayment before you borrow.
It’s one of the most common situations we hear about. The business is trading well enough, but the accountant is eighteen months behind, a couple of returns are overdue and there’s a growing balance with IRD. The bank wants up-to-date financials before it will talk. Meanwhile, the business needs money now. If you own property with equity, there’s often a way through.
Why property changes the conversation
A lender without security has to rely on your paperwork to judge whether the loan will be repaid. When the paperwork is missing, it has very little to go on. A lender with property security has a different safety net: if the loan isn’t repaid, the property can be sold. That shifts the focus from your last two years of accounts to three simpler questions:
- What is the property worth?
- How much is already owed on it?
- How will this loan be repaid?
That’s why property-backed lenders can often help owners whose books are behind.
The two main structures
Second mortgage. Your existing home loan stays in place. The new lender registers a mortgage behind it. This is usually quicker and avoids break fees on a fixed-rate home loan. See second mortgage business loans.
Non-bank first mortgage. The new lender repays your existing loan and takes first position, lending more on top. This can be cheaper over time for larger amounts, but involves more legal work. See first mortgage business loans.
What the lender will still want
Less paperwork doesn’t mean no paperwork. Expect to provide:
- photo ID for every owner on the title and every borrower;
- the property address and a current statement for any mortgage on it;
- a registered valuation, which the lender usually orders;
- a few months of business bank statements to show the business is trading;
- an IRD statement of account showing anything owed;
- a clear purpose for the funds;
- your exit plan, in writing.
Building a credible exit
The exit is the heart of the application. It’s how the loan will end, and lenders want it specific. Common exits for owners whose books are behind include:
- Refinance to a bank once returns are filed and the accounts show the business is profitable.
- Sale of an asset, such as a rental property, a vehicle fleet or the business itself.
- A known payment, such as a contract milestone, a settlement or an insurance payout.
- Trading income, if the loan is small relative to the business’s cash flow.
The strongest exits come with evidence: an engagement letter from your accountant with a timeline for catching up, a listing agreement with a real estate agent, a signed contract. Our guide to preparing a low doc income declaration covers how to present income evidence alongside a property application.
Using the loan term to catch up
The smartest owners treat the loan period as a project. Week one, engage your accountant with a firm deadline. Month one, file the overdue GST returns. Month three, file the overdue income tax returns. Month six, have current accounts ready for a bank. If the loan is for twelve months, you’ve left six months of margin. Without a plan like this, the loan term slips by, the paperwork is still behind and the refinance doesn’t happen.
Clearing IRD at the same time
Many owners with books behind also owe IRD. A property-backed loan can clear that debt in one payment, stopping penalties and interest from growing. Compare this with an IRD instalment arrangement first, because the arrangement may cost less. If you do borrow, tell IRD a payment is coming and keep filing new returns on time. See IRD tax debt loans.
Risks to weigh carefully
Using your home as security for a business loan is serious. If the exit fails and the loan can’t be repaid or extended, the lender can enforce its mortgage. Before you sign:
- Borrow the amount the business needs, not the maximum available.
- Make the term long enough for your exit to happen, with a margin.
- Make sure everyone on the title understands and agrees.
- Get independent legal advice; most lenders require it.
- Have a backup exit in mind if the first one slips.
An illustrative example
A Gisborne building company has two years of income tax returns overdue and owes IRD about $85,000. Its bank won’t extend its overdraft. The directors own their home, worth about $720,000, with $310,000 owing. A second mortgage lender values the home, confirms the title and lends $150,000 for fifteen months: $85,000 to IRD, the rest for materials on two signed contracts. The directors engage their accountant with a six-month deadline to file the returns, and plan to refinance with their bank once the accounts are done. Illustrative only.
Commercial and investment property
You don’t have to use your home. A rental, a holiday home or commercial premises can all serve as security. Lenders may lend a smaller share of the value against commercial or rural property, and rental income may support the repayments. If you have a choice, using an investment property keeps the family home out of it, which many owners prefer.
What it costs
Property-backed lending for owners with books behind costs more than a standard bank loan, because the lender carries more risk and the loans are often shorter. Expect valuation and legal fees, an establishment fee and possibly fees at discharge. Some lenders deduct part of the interest upfront. Ask for every cost in writing and compare the total, not just the headline figure.
When property isn’t the answer
If the business is losing money rather than simply behind on paperwork, borrowing against property may only delay a harder conversation and put your home at risk. Talk with your accountant about the real position before you commit. Sometimes a smaller loan, a sale of assets or a restructure is the better path.
Talking to your existing lender
If your home loan is with a bank, it’s worth telling it what you’re planning, especially if the loan agreement requires consent before another mortgage is registered. Some banks will surprise you and offer a top-up once they understand the situation and see your plan to catch up the paperwork. Others won’t, but at least the second mortgage won’t come as a surprise that damages the relationship you’ll need when it’s time to refinance.
Talk it through first
Tell us about the property, what’s owed on it, how far behind the books are and what the business needs. 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 to talk through whether property makes sense for you. Start your enquiry.
Frequently asked questions
Will a lender lend if I haven't filed returns for two years?
Some property-backed lenders will, provided there's enough equity and a credible exit. Expect them to want a plan for catching up the returns.
Do I need to tell my bank about a second mortgage?
Check your home loan terms. Many require the first lender's consent or notice before another mortgage is registered.
Can I use someone else's property?
Sometimes, with their full agreement, but it's a big ask. Anyone offering property as security should get independent legal advice.
What if I can't refinance at the end?
That's the main risk. Build a backup exit, such as selling an asset, and talk to the lender early if your plan is slipping.