Do I need a registered company to get a business loan?

A lot of New Zealand owners assume they need “Limited” after their name before a lender will take them seriously. Mr is happy to put that one to rest: plenty of sole traders and partnerships borrow successfully every week. Structure matters, but not in the way people think.

Which business structures can borrow?

All the common ones:

• Sole traders — you are the business; you just need to tell IRD and use your IRD number.
• Partnerships — two or more people (or entities) running a business together.
• Limited companies — a separate legal entity owned by shareholders and run by directors.
• Trusts — where trustees run or own the business for beneficiaries.

Each can borrow for business purposes. What changes is the paperwork and who carries the risk.

How does structure change the loan?

	Sole trader	Partnership	Company	Trust
Who borrows	You personally	The partners	The company	The trustees
Who’s liable	You, for all business debts	Partners share liability	Company; shareholders up to their shares	Trustees, within the deed
Personal guarantee	Already personally liable	Often from each partner	Usually from directors	Often from trustees or key people
Typical documents	IR3 returns, bank statements, ID	Partnership agreement, IR7, IDs	Companies Office details, IR4, director IDs	Trust deed, trustee IDs, IR6
NZBN	Can apply	Can apply	Automatic	Can apply

Business.govt.nz sums up the core difference: as a sole trader you’re personally responsible for all debts, while company shareholders are responsible for the company’s debts up to the value of their shares. Partners share liability and risk their personal assets.

So does a company protect me from the loan?

Only partly. Most lenders ask directors for a personal guarantee, which sets aside the limited-liability shield for that lender. So in practice, a director and a sole trader can end up with similar personal exposure on a business loan. Read will I have to sign a personal guarantee? before you sign.

Should I set up a company before I apply?

Mr’s answer: not just to borrow.

• A new company starts with no trading history of its own, which can make unsecured lending harder in the short term.
• Lenders often look through to the history you built as a sole trader anyway.
• Incorporating has tax, accounting and compliance consequences, which deserve your accountant’s attention.

If a change of structure is right for the business, do it for those reasons and tell the lender, so it can see the whole history.

What do lenders actually focus on?

Far more than structure:

• How long you’ve been trading — see how long do I need to be trading?
• What your bank statements show — regular income, how the account is run.
• Credit history — yours and the business’s.
• Tax position — returns filed, GST and PAYE paid or under an arrangement.
• Security — whether property is available.

Want to know how your structure and situation stack up? Try the funding readiness check, or ask a person directly.

Tips for sole traders who want to borrow

1. Open a dedicated business account and run all business income and costs through it.
2. Keep your IR3 returns filed — they’re your financial statements in a lender’s eyes.
3. Register for GST if you’re required to (turnover of $60,000 or more over 12 months), and file on time.
4. Consider an NZBN — it’s a simple, verifiable identifier.
5. Keep personal and business credit tidy, because for a sole trader they’re the same thing.

Tips for companies

• Keep Companies Office details current — directors, shareholders, address.
• File annual returns and tax returns on time.
• Keep shareholder current accounts in order; an overdrawn one invites questions.
• Have every director’s ID ready, because each will probably sign.

An illustrative example: the sole trader who almost incorporated

This scenario is made up.

A self-employed arborist in Tauranga has traded as a sole trader for five years. Her IR3 returns are filed, her income runs through a business account, and she’s ready to buy a chipper and a bigger truck. A friend tells her lenders “only deal with companies”, so she’s about to incorporate before applying.

Mr’s advice in a case like hers:

• Don’t incorporate just for the loan. A brand-new company has no trading history of its own; her five years as a sole trader are the strongest thing she has.
• Apply as she is. Lenders can assess her IR3 returns, bank statements and credit.
• Talk to her accountant separately about whether a company makes sense for tax, risk and growth. If it does, she can change structure later and refinance or novate the loan with the lender’s agreement.

As a sole trader she’s already personally liable for business debts, so a personal guarantee changes little for her. If she later incorporates, she’ll probably sign one as a director anyway — another reason structure alone isn’t the deciding factor.

Structure questions Mr hears all the time

• “Will a company get me a lower price?” Not by itself. Pricing follows risk: security, credit, history and purpose.
• “Can I borrow in my company’s name with my personal property as security?” Yes, commonly — you give security and usually a guarantee.
• “Does a look-through company change anything?” For lenders it’s still a company with its own documents; tax treatment is a matter for your accountant.
• “I’m a shareholder but not a director. Do I sign?” Possibly not, but if you own security property or are a key person, a lender may ask.
• “My spouse is a co-director but not active.” Lenders often still ask all directors to guarantee.

Ask Mr about your structure

Tell us how your business is set up, how long you’ve been trading and what you need. There’s no credit check to ask, your details aren’t broadcast to a crowd of lenders, and a real person will explain which documents and signatures your structure will need.

Please choose your business structure carefully on the form — it decides who signs and what’s needed, so getting it right avoids a second round of paperwork. See if your business qualifies.