Securing the right business loan can be a crucial step in the journey towards business success. But with a variety of lenders, loan products and business finance offers available throughout New Zealand, it can be difficult trying to decide which loan is right for you.

In this blog, we’ll break down one of the most important considerations when determining the right business loan for your needs: Interest rates.

What is a Business Loan Interest Rate?

The interest rate refers to the percentage of the loan amount that a business needs to pay the lender back in addition to the regular repayments to pay down the principal loan amount. In other words, the interest rate determines the cost of borrowing for a business.

Fixed vs Variable

There are two types of business interest rates: Fixed and variable.

Fixed interest rates remain the same throughout the loan term. Regardless of what the interest rate set by the Reserve Bank of New Zealand is, the fixed interest rate will stay the same. 

Variable interest rates function in the opposite way. When the Reserve Bank of New Zealand (RBNZ) raises or lowers the interest rate as part of their efforts to maintain the country’s monetary and financial stability, a variable interest rate may fluctuate accordingly.

Annual Percentage Rate (APR)

You may come across this term at some point in the application for a business loan. It is a comprehensive measure of the cost of a loan, including both the interest rate and any additional fees. (See below for more information regarding fees.)

If it is difficult working out the different effects different loans from different lenders can have on your business’s financial situation, don’t worry because the APR helps you work out exactly that. 

Factors that Influence Interest Rates

Business loan providers set interest rates based on a number of factors.

These include:

  • A business’s credit history
  • The loan amount
  • The term of the loan
  • General macroeconomic and market conditions
  • The type of industry, i.e., the industry

Breaking Down Factors Affecting Business Loan Interest Rates

There are different types of business loans, such as short-term loans, long-term loans, and lines of credit. Each of these types typically have different interest rates.

Loan amounts also impact the interest rate a lender might offer. Loans for larger amounts may qualify for lower interest rates. Additionally, the length of the loan term can also affect the interest rate with shorter terms typically having lower interest rates than longer terms.

Your business’s credit history, which is indicative of its financial health, will be a significant factor in a lender’s decision regarding interest rates. Businesses with a strong financial history and good credit score will more likely qualify for lower interest rates as the risk of default is perceived as being less.

Market conditions are an important factor to consider as well. During recessions and downturns in the economy, there is often more perceived risk of default and therefore higher interest rates to compensate for that risk.

Last, but not least, different lenders have different levels of risk appetites and may offer different interest rates that are reflective of their respective approaches to said risk.

Negotiation on Interest Rates

Few businesses realise that businesses can often negotiate interest rates with lenders and ‘shop around’ to find the right business loan with a competitive interest rate to suit their needs.

While there can be an understandable rush to secure a business loan to ensure the sustainability of your business, it is more important to make the right decision long term by securing the right interest rate and loan option.

How to Find a Competitive Interest Rate

Getting the best deal on a business loan doesn’t have to be overwhelming. Across New Zealand, interest rates for business loans can range widely and even be as high as 23.95% per annum.

To help you get the best deal on your next business loan, here are some strategies to follow:

Shop Around

Don’t just accept the first offer of a business loan that you receive. It is acceptable to speak to multiple lenders and compare rates and offers. You need to make the right decision for your business and the best decision is an informed decision. 

Understand the Fees

A lot of emphasis, understandably, is placed on interest rates. However, there are other fees to consider as well. Understanding these fees and their impact on the APR can be just as important as the interest rate.


Speak with the financial provider you’re considering taking out a loan with to negotiate what sort of interest rate they have to offer. There’s nothing wrong with asking for the best deal possible. 

Have a Strong Plan

Having a strong business plan ensures that you will not only be able to convince lenders that you are a good credit risk and can qualify for a business loan full stop, but that you should be considered eligible for a lower interest rate as well.

Understanding the Full Costs of Your Business Loan

As mentioned above, the interest rate is a significant cost associated with business loans but it is not the only cost. Interest rates are in fact made up of different parts.

1. Base Rate

The base rate is the cost of funds for the lender. In other words, it’s the value of the loan extended.

2. Margin

The margin is the assessment of the risk associated with the loan to the lender. The stronger the finances of the business seeking the loan, the lower the risk and the smaller the margin.

3. Management Fee

Different lenders charge different fees. A management fee might be a monthly fee for access to an overdraft facility, whether or not your business actually uses it. Some lenders may not disclose these sort of fees in statements, so it’s critical you look out for it.

4. Other Fees

Additionally, there are some other fees associated with business loans as well. 

Establishment Fee

This one-off fee is charged when the loan is set up and only then.

Security Registration Fee

For a secured loan, i.e., one with an asset or property serving as collateral, there may be a fee associated with registering the security interest.

Interested in Finding Out More? Contact ScotPac Today!

Fortunately, you and your business don’t have to find the right business loan on your own. Lending specialists in our Auckland office are here to help you.

Get in touch with us today and let us help you find the right interest rate and business loan to ensure your long-term success.