How much should a small business borrow?

“How much can I get?” is the question most people ask first. A friend who knows lending would gently turn it around: “How much do you actually need, and how much can you comfortably pay back?” Those two questions, answered honestly, give you the right number far more reliably than any lender’s maximum.

Why not just borrow the maximum?

Because the lender’s maximum is about their comfort, not your business’s needs. It reflects what they think you can repay under their assumptions, secured on what you’re offering. It doesn’t know about the quiet month you’re expecting, the ute that’s due for replacement, or the fact that you’d like to take a holiday this year.

Borrowing more than you need means:

• paying interest on money sitting idle;
• bigger repayments squeezing future cash flow;
• more at stake if things don’t go to plan.

Borrowing too little is a problem too: you solve half the issue and end up back for a second loan, often in a hurry and on worse terms.

Step 1: Size the actual need

Write down, in detail, what the money is for.

Then add a buffer. For purchases with clear prices, a small one. For renovations, contracts and anything involving builders, more — overruns are normal.

Step 2: Test what the business can repay

Now look at your cash flow honestly.

1. Start with your average monthly surplus — money left after all costs, including what you pay yourself — from the last six to twelve months of bank statements, not from your hopes.
2. Adjust for what the loan changes. Will the new equipment bring in more? Will clearing IRD stop penalties?
3. Check the repayment fits comfortably inside the surplus, with room to spare.

“Comfortably” matters. If the repayment takes nearly all of your surplus, any wobble — a late payer, a quiet month, an unexpected repair — puts you under pressure.

A good test: could you still make the repayment in your worst month of the past year?

Step 3: Stress-test the plan

Ask the “what if” questions a careful friend would:

• What if sales are slower than expected? Try your numbers with lower revenue.
• What if it takes twice as long? Twice as long to finish the job, sell the stock or refinance.
• What if costs rise? Materials, wages (the adult minimum wage rose to $23.95 an hour from 1 April 2026), or KiwiSaver contributions (employer minimum now 3.5%).
• What’s the plan B? What could you sell, cut or change if things go wrong?

If the plan survives these, you’ve probably got the right number. If it only works when everything goes right, borrow less or rethink the plan.

Step 4: Match the loan type to the need

The shape of the need matters as much as the size:

• One-off purchase or fixed gap → a loan for a set amount.
• Recurring or unpredictable needs → a line of credit you draw on only when needed.
• Larger amounts, property available → a property-secured loan from $20,000 up to $1m.
• No property, steady trading → an unsecured loan based on turnover and bank statements.

A line of credit is often the smartest way to hold a safety buffer, because you’re not paying for money you don’t draw.

Common mistakes to avoid

• Anchoring on the maximum. Start from your number, not theirs.
• Forgetting on-costs. GST, legal fees, set-up, stock for a new site.
• Ignoring seasonality. A repayment that’s fine in summer might bite in winter.
• Borrowing to cover losses without a fix. If the business loses money every month, more debt makes the hole deeper. See when not to borrow.
• No exit plan. For short to medium term loans especially, know how you’ll repay or refinance. Our exit plan guide helps.

A quick worksheet

Where LendFriend fits

Tell us what you need and why. We’ll help you sense-check the amount, look at your situation and match you with a lender from our panel whose product fits both the size and shape of the need. If we think you’re asking for too much — or too little — we’ll say so. Every loan is priced on your circumstances, and you decide.