Quick answer
New Zealand sole traders can borrow for business purposes through unsecured loans sized on bank statements, low doc loans using GST returns or an accountant's letter, or property-backed loans over a home or investment property. Because a sole trader's business and personal finances are legally the same, lenders look at your IR3 returns, personal credit file and how business and personal money move through your accounts.
Key points
- Your business and personal finances are legally one and the same.
- Lenders read IR3 returns, bank statements and your personal credit file.
- Low doc and property-backed options suit irregular income.
- A separate business account makes everything easier.
- Income evidence
- IR3 returns, bank statements, GST returns
- Unsecured range
- $5,000 to $500,000 (typical)
- With property
- $20,000 to $5,000,000
- Credit file
- Your personal file is the business's file
Being a sole trader is the simplest way to run a business in New Zealand. It also means that, to a lender, there’s no line between you and the business. Your income tax return is the business’s return. Your credit file is the business’s credit file. Your home might be the business’s security. That simplicity can work in your favour, if you present it well.
How lenders read a sole trader
Because there’s no separate legal entity, lenders look at you as a whole:
| What they check | What they’re looking for |
|---|---|
| IR3 income tax returns | Taxable income over the last one or two years |
| Bank statements | Business deposits, regular outgoings, overdrawn days |
| GST returns, if registered | Sales and purchases by period |
| Personal credit file | Defaults, judgements, repayment history |
| Personal commitments | Mortgage, car loans, cards, other debts |
| IRD statement | Whether income tax, GST or provisional tax is owed |
The tax return problem
Many sole traders reduce taxable income legitimately by claiming expenses: vehicle costs, tools, home office, depreciation. That keeps tax down but can make your IR3 look thin to a lender that relies on returns. There are two common ways around it. A low doc lender may assess you on your bank statements instead, which show what’s actually coming in. Some lenders also add back non-cash expenses such as depreciation when assessing affordability. Ask your accountant to explain which expenses are non-cash so you can point them out.
Your options
Unsecured loans. Sized on bank statements and suited to modest amounts for tools, vehicles, stock or working capital. See unsecured business loans.
Low doc loans. Use GST returns, bank statements or an accountant’s letter instead of full returns. See low doc business loans.
Equipment finance. The equipment itself is the security, which can make approval easier. See equipment finance.
Property-backed loans. A second mortgage over your home or a first mortgage over an investment property opens larger amounts and is more forgiving of uneven income. See second mortgage business loans.
Make your accounts easier to read
- Open a separate business account and run all business income and costs through it.
- Pay yourself a regular drawing into a personal account rather than spending straight from business funds.
- Keep GST and provisional tax money aside in a labelled savings account.
- File returns on time, even if you need an instalment arrangement to pay.
- Keep receipts and invoices in accounting software, so you can produce reports quickly.
When income goes up and down
Seasonal and project-based sole traders, such as builders, shearers, contractors and tourism operators, often have months with very little income followed by large payments. Twelve months of statements and a short explanation of the cycle help a lender understand it. Applying during or just after a busy period, with the pattern visible, often works better than applying in the quiet season.
An illustrative example
A Whangārei sole-trader arborist wants $58,000 for a used chipper and trailer. His last IR3 shows taxable income of $52,000 after vehicle and equipment depreciation, which looks modest. His business account shows deposits averaging $14,000 a month over twelve months. An equipment finance lender assesses him on the statements and the value of the chipper, and approves the loan. Illustrative only.
Provisional tax and lenders
Once your residual income tax passes the threshold, you’ll pay provisional tax through the year. Lenders notice large IRD payments in your statements and may ask about them. That’s a good thing: regular provisional tax payments show you’re on top of your obligations. What concerns lenders is a provisional tax debt that’s building up. If you’re behind, set up an instalment arrangement with IRD before you apply, and include the arrangement letter with your enquiry.
Mixing business and personal debts
Your car loan, credit cards and personal mortgage all count against what you can borrow, because they’re all your debts. List them honestly. A lender will see them on your credit file anyway, and it’s better that the first conversation includes them.
Personal guarantees and your home
As a sole trader you’re personally responsible for business debts anyway, so lenders don’t need a separate guarantee in the same way they do for a company. If you use your home as security, everyone on the title has to agree, and it’s wise for everyone to get independent legal advice.
Talk to us about your numbers
Tell us what you need, roughly what your bank deposits look like and where your returns are up to. Asking won’t mark your credit file, your enquiry stays with one person rather than going down a list, and that person will phone you to work out the best fit. Honest answers about your income and commitments make for a quicker, better answer. Send an enquiry.
Frequently asked questions
Can a sole trader get an unsecured business loan?
Yes. Many lenders offer unsecured loans to sole traders based on six to twelve months of bank statements, as long as trading is steady and the credit file is reasonable.
My IR3 shows a low income because of expenses. Will that hurt?
It can with lenders who rely on tax returns. Low doc lenders who read bank statements, or lenders who add back certain expenses, may see a truer picture.
Do I need to be GST registered?
No. Registration is required once turnover exceeds the threshold, but lenders can work with unregistered sole traders using bank statements.
Should I become a company before borrowing?
Not just for a loan. Changing structure has tax and legal effects, and lenders usually want some trading history in the new structure. Talk to your accountant first.