With interest rates at an all-time low, is now a good time for you to grow your business?

Man working on computer
Karna Luke
General Manager of Business Lending & Growth Sectors
5 MIN

With interest rates hitting historic lows, BNZ’s General Manager of Business Lending & Growth Sectors, Karna Luke, discusses how some businesses could use this opportunity to help them to grow their business.

I’m sure you’re aware we’re living in extreme times, but I’m not talking about COVID-19. I’m talking about low interest rates.

The Official Cash Rate (OCR) – which is the interest rate banks in New Zealand get when they deposit spare cash into the Reserve Bank – has decreased to a historic low of 0.25%.

With a lot of uncertainty caused by the economic impacts of the COVID-19 pandemic still lingering, interest rates could remain low for some time to come. With low interest rates comes an opportunity to invest in your business, positioning yourself for growth or changing to meet new customer needs.

There are four main benefits of lower interest rates:

  • New lending
    Low interest rates mean it can be cheaper to borrow, which means business owners may now find new borrowing more affordable and reinvesting into your business more feasible.
  • New spending
    Paying less on loan repayments helps free up cash to use elsewhere in your business.
  • Reduction of debt
    Some businesses may refinance their existing debt at a lower interest rate while maintaining existing loan payments, which can help you to pay down your debt more quickly.
  • Higher business valuations
    If you are selling your business or raising money by selling equity, investors are likely to see a better return on their capital by investing in a business rather than term deposits, bonds, or other investment vehicles. Your business may suddenly become a lot more attractive!

Of course, just because it’s cheaper to borrow money doesn’t mean you should. Make sure you assess your own situation carefully and consider things like:

  • Loan repayments
    You still need to be able to pay the loan back. The core rationale for borrowing needs to hold up, low interest rates or not.
  • Financial pressure
    Taking on extra debt could put more pressure on your business with higher repayments, so you need to be sure it’s the right move for you and your business.
  • Your industry’s outlook
    COVID-19 has changed many industries and affected many businesses, and there’s still a long way to go to return to pre-COVID levels. Some businesses or industries may be changed permanently, so make sure you have clear vision for your next few years.

Low interest rates can also have some negative consequences, such as rising house prices and a more expensive stock market as investors look for yield in other places, and move capital from low interest deposits into the share market thanks to new and more digital brokerage services.

Identifying the benefits of extra capital

It’s up to you to decide if accessing extra capital is a smart business move. If you were already thinking about expanding or scaling up your business, now could be a good time. Remember, it’s not compulsory to expand or grow, and some businesses get speed wobbles and crash if they go too fast. You need to evaluate your business’ situation and do what’s right for you.

It could be worth investigating access to extra capital if you or your business:

  • have more expensive debt that can be refinanced to a lower rate, keeping in mind that breaking any current agreements may incur a cost.
  • see an opportunity to expand distribution such as new branches, outlets, countries, or online models.
  • want to develop new products or services.
  • have opportunities to invest in research and development.
  • have identified a new business model or market opportunity that needs developing.
  • can reduce supply chain costs by importing, buying suppliers or selling direct to consumers.
  • need to upgrade equipment or infrastructure.
  • could reduce costs significantly or invest in owning your premises rather than leasing.
  • can take advantage of bulk buying for non-consumables.

There will be other examples for your type of business and industry, but you get the idea. What could your business do with an injection of cash?

Other sources of extra capital

There are a number of options when it comes to borrowing capital. The key is to match the reason for needing the money with the right funder. Talk to your banker as early as you can, they should understand your business and will be able to help narrow down your options.

Some examples of capital raising include:

  • grants and subsidies. Contact your local Regional Business Partner to identify what you may be eligible for.
  • crowdfunding platforms
  • angel investors
  • government
  • venture capitalists
  • peer to peer lending

If you seek investment capital, BNZ’s Head of Technology Industry Tim Wixon has a great article on preparing your business for investment.

Business Finance Scheme

If additional capital is viable, consider the government Business Finance Scheme (BFS). It’s available to eligible New Zealand businesses impacted by COVID-19, with annual revenue of up to $200 million (maximum loans of up to $5 million).

Some key points of the BFS loans include:

  • Loan terms at a special fixed rate are for a maximum of five years (minimum one year). 
  • Funds are limited, and the availability of loans is subject to certain exclusions.
  • You can repay in part or full at any time, with no early repayment costs. 
  • Loans must be drawn down on or before 30 June 2021, or until the scheme funds have been allocated. 
  • The loan must be for the purpose of one or more of the following:
    • responding to the impacts of COVID-19.
    • positioning yourself to recover from the impacts of COVID-19.
    • recovering from the impacts of COVID-19.
  • We’ll require our usual security arrangements, which may include a General Security Agreement (GSA) and personal guarantees (where applicable).
  • You may refinance up to 20% of your existing BNZ business debt on the scheme*.

Lending criteria, terms and fees apply. For more information click here.

In summary, with unprecedented low interest rates, small business owners have the opportunity to weigh up the benefits of what a capital injection could do to their business, along with the attached risk of increasing debt and the cost of accessing capital.

The key is to make a measured decision, even if that means you end up doing nothing and keep the status quo. It’s still a conscious action. 


The information, recommendations and views expressed in this article are the personal views of Karna Luke and do not necessarily represent the views of BNZ, or its related entities.

The information in this article is provided for general purposes only, and is a summary based on selective information which may not be complete for your purpose. To the extent that any information or recommendations in this article constitute financial advice, they do not take into account your financial situation or goals and is not intended as personalised financial advice. While BNZ has made every effort to ensure that the information provided is accurate, you should not rely on this information to make any financial decision without first having sought advice specific to your circumstances from an authorised financial adviser. Neither BNZ nor any person involved in this article accepts any liability for any loss or damage whatsoever which may directly or indirectly result from any advice, opinion, information, representation or omission, whether negligent or otherwise, contained in this article.

References to third party websites are provided for your convenience only. BNZ accepts no responsibility for the availability or content of such websites.

Business loans are subject to lending criteria, terms, and fees.

* The application of BFS loan funds for some purposes, including the following, are exempt from the 20% refinance limit: 
refinance of term loans and term facilities which mature during the availability period
payments of BFS loan funds into an overdraft account (overdraft limits must remain in place)
refinance of an existing BFS loan made to reflect the scheme terms.

Karna Luke
General Manager of Business Lending & Growth Sectors
Karna joined BNZ in 2015 as Head of Auckland Strategy before leading Corporate Strategy & Emerging Markets, Growth Markets and Maori Business and finally to his current position of General Manager of Business Lending & Growth Sectors. Karna is a frequent speaker on the challenges and opportunities facing SME Businesses today and is passionate about creating the right environments for SMEs to thrive. In addition to his business passions, Karna dedicates time managing, coaching and mentoring up and coming rugby players.