Low rates could tempt businesses to take risks with their home – but should they?
The recent OCR cut to 1% has made borrowing cheaper than ever, and according to financial advice company OneHQ, this may tempt some small business owners to “take risks” with their family home in order to access capital.
New Zealand’s main banks are notably reserved when it comes to lending into the SME market, and according to finance navigator Dylan Ferreira, business owners looking to access funds may now look to use the equity in their family home – however, they should take care to ensure that they are raising those funds in the right way.
“This OCR cut to one percent may tempt some to borrow further against the mortgage, which isn’t always good practice,” Ferreira said.
“While many business owners like to fund their business through the use of the equity in their family home, access to capital will get harder as banks look for reasons to decline – they’re not interested in trying to accommodate anybody who doesn't meet their very strict criteria, and that is not good for business. That’s not stimulus.”
Ferreira says that when it comes to borrowing, ‘cheaper is better’ is a common myth. He says each business owner should take the time to assess their own individual circumstances, and seek the help of a broker or an accountant to explore their options.
The lack of funding available to SMEs recently paved the way for small business lender Prospa to enter the market, and Social Credit Party leader Chris Leitch says New Zealand’s small business economy would be better served by more local banks lending into their local communities. According to Ferreira, non-bank lenders are increasingly becoming a good option for SMEs looking to raise funds as banks continue to be ‘jittery’ with their funds.
“Second tier lenders have a strong appetite for both personal and business debt, and these lenders are now able to offer terms and conditions and rates not too dissimilar to the banks,” he said.
“It’s good practice to ensure your accountant and lending broker are part of this decision process.”
