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​SMALL BUSINESS FINANCING OPTIONS AND THEIR INTEREST RATES IN NEW ZEALAND

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Stability of financial conditions in a certain country entices many of its people to start their own businesses. Enthusiastic to earn profit or to help organizations, these young entrepreneurs and small business owners exert all their efforts in making their business a success. They draft business plans, polish it with objective information and present it to prospective partners. Despite the perfectness and feasibility of the plan, most of the time they remain as plans not because the owner is incapable of running it, but because he lacks sufficient financing to bring it to operations. As such, knowledge of the small business financing options and their interest rates in NZ is indispensable.

Before a person engages in a start-up or small business, he must consider the following small business financing options and their interest rates in NZ (New Zealand):

1. Credit cards

Credit cards are one of the accessible ways to get financing. Because it is easy to get one, about 80% of entrepreneurs immediately resort to credit financing. However, in doing so, one must be wary of the costs of this option and the legal implications if in case he fails to pay his obligations. This is not to scare the small business owner; this is to enlighten him of the possible consequences of getting a credit card.

Firstly, using it is one of the small business financing options and their interest rates in NZ depend on the type of rates each credit card provides. For those with floating rates, the interest rate is at 6.74% per annum, and for those with fixed rates, the interest rate is at 6.49% per annum.

Because the interest rates are relatively lower compared to other countries (which ranges from 18 to 19% per annum), small business owners are highly advised to obtain a credit card to finance their businesses. Start-up business owners may opt to obtain one, but they must do so only when their business has already established a stable financial condition capable enough of paying its obligations.

2. Mortgage loans

Mortgage loans are financing options which are available only for those which have enough property to be used as collateral for the loan to be obtained. The system of this financing option is to grant a person his requested loan while placing his property as security, so that in the event that such person fails to pay his obligation, the financial institution granting the loan can go after his property. This option is considered the riskiest; nevertheless, a lot of individuals opt to go with the risk just to obtain financing.

Using it is one of the small business financing options and their interest rates in NZ ranges from 5.75% to 6.49% per annum, depending on the financial institution from which the mortgage loan is obtained.

Small business owners who have properties may opt to consider this financing option. Start-up business owners who have properties may also do so, but those who do not have properties are not advised to take this financing option unless he has friends and relatives who are willing to put their properties as security.

3. Home mortgage loans

Home mortgage loans are one of the small business financing options and their interest rates in NZ are usually more stable than mortgage loans. The security used in this kind of mortgage as collateral for the property is the family home. It must be noted that using the family home as a security for a loan is prohibited. However, modern times have changed this rule, and most countries now allow home mortgaging as a financing option.

Using it is one of the unique small business financing options and their interest rates in NZ are usually locked at 5.39%. The interest rates for home mortgages are lower than the typical mortgage loans because of the assurance that the home is free from any encumbrance other than the mortgage to be instituted. Simply stated, the financial institution is secured that no other obligation secures such property.

Because of the nature of home loans, only small business owners and start-up business owners which have homes are capable of utilizing this financing option. Those without homes may opt to do so, but the security that they will be using is usually the family home of his parents. Thus, this is not advised for them.

4. Equity financing

Equity financing is another financing option wherein a person desires to invest in someone’s business, and expects a share in the profits as return of his investment. This is also one of the accessible options for business owners who do not have any connections with well-known investors, and only has his friends and relatives as sources of funding. This is also applicable to persons who do not have friends or relatives, but such set-up may subject him and the investor into a more stringent agreement.

Using it is one of the small business financing options and their interest rates in NZ are primed at zero percent. This is because in equity financing, some people such as angel investors might consider their investment as a donation to the business owner. However, if the investor will not consider it as such, the interest rate ranges from 6% per annum to 8% per annum, depending on what has been agreed upon.

Knowing the small business financing options and their interest rates in NZ, as well as the economic condition of the country, helps a person in assessing the possible financing options available to him based on his capacity.

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