This might be an unusual page for a lending website. But if you had a friend who’d worked in finance for years, one of the most valuable things they’d ever tell you is: “Don’t borrow for this.” Here’s when we’d say it — and what we’d suggest instead.
1. When the business is losing money every month
Borrowing is excellent for timing problems: a gap between costs and income, a season, a contract. It’s terrible for profit problems: a business spending more than it earns, month after month.
If you’re losing money, a loan buys time — but at a cost, and the hole grows while you repay. The Reserve Bank’s November 2025 Financial Stability Report described many firms facing “soft demand and reduced profitability”, particularly in consumer-facing sectors. In those conditions, extra debt without a fix can turn a hard year into a failed business.
Instead: sit down with your accountant and look at pricing, costs, product mix and customers. Fix the leak, then borrow — if you still need to — to fund the recovery.
2. When you’re borrowing to make repayments on other loans
This is the stacking cycle: loan two covers loan one’s repayments, loan three covers loan two. Each lender takes a slice of your income, and less is left to run the business every week.
Instead: stop adding. List every debt and consider a single, properly structured refinance — or talk to creditors about arrangements. One planned repayment is far healthier than five scrambling ones.
3. When you can’t explain the purpose in one sentence
“General working capital” or “just to have a buffer” is fine if you know what the buffer protects against. If you can’t say, clearly, what the money will do and how it pays back, you’re not ready.
Instead: use our how much should a small business borrow worksheet. If you end up with a clear need, great. If you don’t, you’ve saved yourself a loan.
If you can’t explain it to a friend over a flat white, don’t explain it to a lender yet.
4. When the plan only works if everything goes right
Stress-test it. What if sales are slower? What if the job takes twice as long? What if the big customer pays late? If the answer to any of those is “then we couldn’t make the repayments”, the loan is too big, too short, or the plan too fragile.
Instead: borrow less, stage the plan, or build in a buffer. A line of credit you draw only when needed can be a gentler way to hold a safety net.
5. When the tax problem will happen again
Borrowing to clear IRD debt can be a smart move — but only if the cause is fixed. If GST and PAYE were funding the business because cash was tight, the same thing will happen next period.
Instead: set up a separate tax account, look at your GST filing frequency, and tighten credit control first. Then clear the debt. See falling behind with IRD.
6. When the security is more than you can afford to lose
A loan secured on the family home is a serious commitment. If the business failing would mean losing the home and you haven’t honestly discussed that with your partner or family, pause.
Instead: have the conversation — our guide on talking to your partner about home equity can help — and consider an unsecured option or a smaller amount.
7. When you’re being rushed or pressured
A real deadline is one thing. A lender or salesperson manufacturing urgency is another. If you’re being pushed to sign before you’ve read the documents, that’s a reason to stop, not to hurry.
Instead: check our list of red flags in loan offers.
8. When there’s a cheaper, simpler fix
Sometimes the answer isn’t a loan at all:
| Instead of borrowing… | Try… |
|---|---|
| To cover a small, short gap | Asking a supplier for a few extra weeks |
| To pay a modest tax bill | An IRD instalment arrangement |
| To buy a machine you’ll use twice | Hiring or leasing it for the job |
| To fund slow payers | Invoicing faster and following up the day after due |
| To hire ahead of demand | Overtime or contractors until the work is proven |
9. When the business might not be viable
If you’re worried the business can’t recover, borrowing more — especially against personal assets — can make the outcome worse for you and your family. Directors also have duties when a company is struggling.
Instead: get professional advice early from an accountant or insolvency practitioner. Early advice keeps more options open.
So when is borrowing a good idea?
When the need is clear, the business is fundamentally sound, the repayments fit comfortably even in a slow month, and you understand exactly what you’re signing. That describes most of the owners we talk to — and when it describes you, we’ll help you find the right lender from our panel.
Where LendFriend fits
We’d genuinely rather tell you not to borrow than match you with a loan that hurts. Tell us what’s going on. If borrowing makes sense, we’ll look at your situation and match you with a suitable lender. If it doesn’t, we’ll say so — and point you towards what might help instead.
And if you do need funding…
That's where we come in. Tell us what's going on and we'll match you with a lender from our panel that fits — and tell you honestly if borrowing isn't the right move.
Quick questions
Why would a lending company tell me not to borrow?
Because a loan that hurts your business is bad for everyone. We'd rather you come back when borrowing will genuinely help — and tell your friends we were straight with you.
What should I do instead of borrowing to cover losses?
Look hard at pricing, costs and your customer mix with your accountant. Talk to creditors and IRD early. If the business may not be viable, get professional advice promptly rather than adding debt.