Business Lending in 2025 – Is it too hard?
Business financing and access to start up business loans in New Zealand is starting to tighten in line with global trends due to several factors. While recent New Zealand economic data looks encouraging, with some sectors benefiting from the post-pandemic pickup, the underlying figures are beginning to turn downwards. Indeed a recent report by the IMF, published in April 2025, highlights sluggish growth forecasts for global and regional economies.
| Country / Region | 2025 | 2026 | 2030 |
|---|---|---|---|
| World | 2.8% | 3.0% | 3.1% |
| United States | 1.8% | 1.7% | 2.1% |
| Euro Area | 0.8% | 1.2% | 1.1% |
| Japan | 0.6% | 0.6% | 0.5% |
| Emerging and Developing Asia | 4.5% | 4.6% | 4.5% |
| Emerging and Developing Europe | 2.1% | 2.1% | 2.5% |
| Latin America and the Caribbean | 2.0% | 2.4% | 2.6% |
| Middle East and Central Asia | 3.0% | 3.5% | 3.7% |
While some may argue that the above figures show growth, there is concern that the spectre of inflation could see future GDP forecasts slashed further. So, where does this leave businesses in New Zealand?
Outlook for the New Zealand economy
In tandem with global challenges, the outlook for the New Zealand economy is beginning to cause concern. There is no doubt that recent business activity numbers have benefited from a lifting of Covid restrictions. However, it looks as though the welcome bounce in consumer demand and business activity may be short-lived.
Based on the same IMF report (Statistical Index A: Key Global Economic Indicators), below are the projections for annual average GDP growth for Australia and New Zealand:
| Country | 2025 | 2026 | 2030 |
|---|---|---|---|
| Australia | 1.6% | 2.1% | 2.3% |
| New Zealand | 1.4% | 2.7% | 2.2% |
There are many issues to take into consideration, which include:
New Zealand inflation
The New Zealand authorities recently announced inflation data for the first quarter of 2025, which came in at 2.5%, following a previous 2.2% last December 2024.
Granted, this increase is well within the Reserve Bank’s expectations. Spokesperson Nicola Growden said,
“The annual inflation rate is within the Reserve Bank of New Zealand’s target band of 1 to 3 percent for the third consecutive quarter”
While shortages in the employment market have prompted a recent rise in wages, this is unlikely to continue and, in any case, will be significantly less than inflation. Consequently, on a relative basis, the income of many New Zealand families will start to fall.
New Zealand interest rates
The global trend, which saw interest rates slashed to record lows, to support businesses and consumers during the pandemic, is turning rather abruptly.
The New Zealand Reserve Bank uses the Official Cash Rate (OCR) to implement monetary policy, i.e. set interest rates. As of May 28, 2025, the Official Cash Rate (OCR) was reduced to 3.25%, with the next update coming July 9, 2025. This shows a 0.50% decrease from April 2025 when the rate was at 3.75%
While there’s a downward trend from last year, there is a degree of uncertainty as to how long these rate cuts will last.
While a relatively basic tool, increasing interest rates makes borrowing more expensive and will help curtail consumer exuberance. Ultimately, the hope is that lower rates will increase economic activity and create more jobs.
New Zealand unemployment figures
As we alluded to above, the New Zealand economy has benefited from pent-up consumer demand due to the pandemic. While the pandemic is not over, the lifting of restrictions has been a welcome relief for many businesses. A tightening of the employment market saw New Zealand’s unemployment rate remain at 3.2% during the first quarter of 2022, an all-time low.
Due to a lag against economic performance, the rate is likely to remain relatively low for the foreseeable future. However, the New Zealand Treasury recently released forecasts for unemployment which is expected to rise to 4.8% in 2025.
New Zealand economic growth expectations
Recent data released by the New Zealand government shows that the economy rebounded strongly in 2021, with GDP growing by 5.6%. A mix of low-interest rates, historically low unemployment and pent-up demand were behind the impressive growth of 2021.
New Zealand’s economy is recovering from a challenging 2024, when GDP contracted by 0.50 percent. However, the economy expanded 0.80 percent in the first quarter of 2025, showing early signs of recovery. The labour market shows mixed signals. Unemployment remains at 5.1 percent as of March 2025, unchanged from the previous quarter but significantly higher than the 3.2 percent recorded in early 2022.
While the lifting of Covid restrictions boosted the New Zealand economy, we now have new issues to consider:
- Rising Unemployment: Unemployment increased from 3.2% in early 2022 to 5.1% in March 2025, with 156,000 people unemployed
- Global Uncertainty: US tariff policies and trade tensions caused a 12-point drop in business confidence in May as per ANZ Business Outlook survey
- Food Price Inflation: Annual food prices rose 3.7% to April 2025, with butter prices surging 65.3% and grocery prices up 5.2%
- Sectoral Weakness: Construction and retail sectors showing notable decreases, with expected activity falling 13 points
- Migration and Housing: Stronger migration and rising house prices supporting forecast growth of near 3% from 2025/26 to 2027/28
Experts predict that despite current challenges, the economy is forecast to grow near 3 percent from from 2027 to 2028, supported by lower interest rates, stronger migration, and rising house prices.
Cost of living crisis
While wage inflation, remaining stubbornly high, together with relatively low unemployment figures, has shielded the New Zealand economy to a certain extent, the cost of living crisis is likely to get worse before it gets better. Unemployment has grown, consumer spending will fall, and many people will be struggling to maintain their debt repayments. In addition, there are already signs that growth in the New Zealand property market is faltering, and default rates are expected to increase.
Even though the current inflation rate of 2.5% compares favourably to the likes of the UK, currently running at 3.1%, this is unlikely to be the end of the rise. Energy prices continue to move higher, which significantly impacts consumer spending and business activity. So how will this affect the New Zealand business lending market and access to start up business loans in 2025?
Business and consumer market trends
A 2025 report by Centrix has cast a fascinating light on the New Zealand economy, consumer trends and demand for business finance.
Detailed lending data including:
- Consumer lending growth (17.1% total, 18.6% mortgages)
- Business credit demand patterns (9% growth overall)
Sector-specific business challenges:
- Construction: 750+ liquidations, 23% default increase, 52% liquidation increase
- Transport: 23% default increase, 63% liquidation increase
Financial stress indicators:
- 15,000 accounts in financial hardship (14.4% increase)
- 46% mortgage-related hardship cases (19% growth)
Business credit demand strengthened by 9% compared to the same period last year, though this growth came alongside concerning increases in financial stress. Business defaults rose 14% across all industries, while company liquidations surged 27% year-on-year, partially attributed to increased Inland Revenue enforcement activity.
Despite the challenges in construction and transportation industries, some sectors showed resilience in credit demand. Retail trade led with 25% growth in credit applications, followed by hospitality at 23%, and financial and insurance services at 18%. Even these growing sectors experienced increased defaults, with retail and hospitality defaults rising 2% each year-on-year.
Against this backdrop, it is not difficult to see the challenges for businesses looking to borrow money, many of whom will still be paying back emergency Covid funding. So what are the options for companies looking to borrow funds in the short to medium term?
Business lending and start up business loans
Initially, the New Zealand government encouraged banks to assist viable businesses looking to make it through Covid. Even though many industries are now seeing significant growth, as a consequence of pent-up demand, this may be relatively short-lived.
We know that global supply issues for various ingredients and products have caused a significant price spike. An increase in borrowing costs would generally help reduce demand and ease inflationary pressure. However, the ever-growing cost of gas and electricity is worrying. There is still ongoing upward pressure due to supply issues involving Ukraine and Russia. On top of this, governments worldwide have been on a green energy mission which has seen energy-related taxes increase to fund new projects. Consequently, traditional banks are:-
• Tightening their business financing criteria
• Increasing interest rates in line with base rates
• Reducing general access to short-term finance
Many high street banks already have problems on their balance sheet due to Covid loans, which could “turn bad”. While this would likely have been a different story without the recent rise in inflation and cost of living crisis, the situation has changed dramatically of late.
Personal and business credit scores have been improving recently, but the lag between an economic downturn and loan defaults will soon reverse this trend. This will see traditional banks turning their backs on many individuals and businesses, with access to start up business loans also likely to suffer. Consequently, many are now looking toward loan companies such as Crester Credit which offer an array of finance packages and the opportunity to build a long-term financial partnership.
Working with financial partners
Situated between the traditional banks and payday lenders, Crester Credit can offer a range of products for those falling between these two areas of the market. For many businesses, the opportunity to create a long-term relationship with financial partners could be the difference between survival and failure. Some of the benefits of working with a financial partner include:-
• A greater understanding of the business, people and long-term prospects
• A long-term view of finance requirements, often overlooking short-term bumps in the road, in favour of long-term prospects
• The ability to react relatively quickly to changing markets and refocus business lending facilities
Perhaps the most significant benefit of working with a financial partner is the fact that you are not just a number; you are a business and an individual.
Planning ahead
At this moment in time, as economic uncertainty begins to impact consumer confidence, many businesses are looking to the future with concern. As we saw during the Covid pandemic, many still see a long-term future but there may be short-term challenges which need to be addressed. While it would be foolish to suggest that reckless business lending is beneficial to anyone, taking a sensible long-term structured approach to finances can be a game-changer.
Removing a degree of uncertainty from businesses allows directors and employees to focus more on their business than short-term financial challenges. There is no escaping the fact the next few years will be challenging; business lending criteria will continue to tighten, access to start up business loans will reduce and interest rates look set to rise further. However, help is at hand, finance is available for those having short-term issues, and the benefits of a long-term financial partner could prove invaluable going forward.
Summary
As a business, it is crucial to have the support of your lender/financial partner as a means of addressing short-term issues in order to benefit from long-term potential.
Ironically, many businesses are now starting to benefit from a return to more personal relationships with their lenders/financial partners. This is in stark contrast to a tightening of traditional bank business lending criteria and the ongoing policy of treating customers as numbers instead of businesses and individuals.
by Ash Horton
May 23, 2022
Ash is a professional content writer with extensive experience in business development in the financial services. Ash has founded businesses from the age of 19, including franchising ventures, and working alongside some of the largest retailers in the world.
