Small business & SME financing options

Are you about to float a new business idea in New Zealand but haven’t committed to a small business financing option? Or you have a thriving business, but require a short-term injection of capital to finance your SME’s business growth? 

Before you take out a regular small business loan, it’s prudent to consider some lesser known and seldom considered methods to finance your SME.

What is an SME?

An SME, or small-to-medium enterprise, is an all-encompassing term that’s used to describe both small and medium businesses. 

How do we define ‘small’ and ‘medium’ businesses respectively? 

  • A small business is generally understood to be an enterprise which employs less than 20 people. 
  • A medium business is generally defined as an enterprise which employs between 20 and 100 people.

According to the New Zealand Ministry of Foreign Affairs and Trade (MFAT), SMEs contribute significantly to the New Zealand economy. In fact, SMEs:

  • represent 97% of all New Zealand businesses
  • employ over 630,000 New Zealanders, making up 29% of all New Zealand employees
  • generate 28% of New Zealand’s GDP

What are small businesses’ best financing options?

The best small business financing option will always be defined by the most suitable and available option. Personal circumstances will dictate not only what suits you best, but what’s feasibly accessible.

There are three major categories of business financing:

  • Debt financing, such as bank loans, credit cards and short-term loans.
  • Personal financing, such as your own savings or a personal arrangement with friends and family.
  • Equity financing, such as investors, venture capitalists and shareholders.

For a full run down on small business funding options, see our article here.

Let’s step away from the most obvious avenues for a moment and scrutinise several lesser-known small business and SME financing options to better determine their suitability (or lack thereof).

Short-term loans

Short term loans are an attractive cash flow boosting option, especially for established businesses with a good trading history.

A short-term loan, as opposed to a longer-term business loan, is usually used as a stop gap solution to cash flow shortages. 

If you have a dependable business opportunity that requires capital, yet you don’t have access to the necessary funds, a short-term loan could be a perfect fit.

Let’s say you require a large stock order due to high demand. If you’re sure of selling this stock for profit and simply need the cash upfront to cover the order, a short-term loan is a suitable option. In this way, such loans can help with cash flow management when important purchases arise.

Better yet, many short-term loan products don’t require assets for security. The usual stipulation is a demonstratable history of trade and a decent turnover. Check out Reckon Loans if you’d like to learn more about short term loans.


Crowdfunding is a relative newcomer to the world of business financing. While it remains abstract to many New Zealand SMEs, it’s worth considering this novel financing option. 

There are several platforms and services now in existence which act to connect a small business with a host of micro investors or donors. As opposed to angel investors, crowdfunding sees the general community offering donations in exchange for equity, rewards, or simply to support your business idea. 

Angel investors

The aptly named ‘angel investor’ is an individual (or group of individuals) who’ll swoop in with a bag of cash to invest in your business. An angel investor will grant you equity funding on the strength of your articulated opportunity and business model.

An angel investor is often difficult to court and even more difficult to land, however the advantages of bringing them aboard can be enormous. 

To land one, you’ll have to have an extremely robust and well-developed business plan. Within this proposal, you’ll need to detail a clear pathway to profitability and convince your intended angel of the benefits of parting with their capital. 

This can be particularly tricky and requires an inspired idea, a receptive market, and a deep understanding of how and when you’ll reach profit and growth stages.

On top of providing the necessary injection of funding, an angel investor will often bring a raft of experience and business contacts to the table, adding further value to their presence. In return, of course, they’ll require a sizeable portion of equity and control over your business, lowering your share.

Accounts receivable financing

Accounts receivable financing (sometimes known as invoice funding) is a lesser known, yet highly attractive form of funding which neatly capitalises on your accounts receivable ledger. 

When you have unpaid invoices on your books, you can receive funding from lenders, leveraged against the value of these unpaid debt assets. 

When your customers eventually settle the outstanding invoices that are languishing in your accounts receivable, you then pay the loan back, with interest or fees attached.

This option is a fantastic way to shore up cashflow holes and transform your unpaid debt into a valuable asset.

Business credit cards

Business credit cards are a viable but less than ideal option for financing your SME. Credit cards famously go hand-in-hand with higher interest rates, compounding interest, and lower limits. As such, it’s unlikely you’d choose to fund the bulk of your venture with one. 

This doesn’t mean business credit cards are without purpose. In the same way you can use a short-term loan to patch a temporary hole in your cash flow, so too can you use a credit card. 

Many businesses will use one to make smaller purchases, to be paid back swiftly before interest charges mount. If you’re sure of your ability to keep business credit cards paid up, and can avoid the dreaded compound interest trap, they certainly have their place.

Equipment financing

If you require certain equipment or vehicles to run your operations, equipment financing is often a far better alternative than a regular business loan. 

Businesses can usually receive a loan for the entire cost of the equipment, without the need for a deposit or security. Depending on the loan you choose, most equipment financing products will use the asset itself as security. 

Another advantage to equipment financing can be found in the associated tax benefits. Providing you use the equipment or vehicle as a key part of your business, you can claim a deduction for depreciation and loan interest to further reduce your taxable income with the IRD.

If owning the asset isn’t necessary, you can also choose to lease equipment, similarly freeing up any cash reserves to be put to use in growing your business.

This concludes our guide to lesser-known small business financing options. Before you commit yourself or your SME to a particular financing opportunity, be sure to thoroughly weigh-up your options and consult with a business advisor or accountant before you put pen to paper.