By Jess Shaw — Director & Financial Adviser, Vesta Finance & Advisory
“Improve your risk profile, and your interest rate will follow.” This is a phrase I use often, because the most common misconception I see among business owners is the belief that interest rates are fixed, non-negotiable, or entirely outside their control.
They are not.
What actually determines your lending rate?
Banks price risk. The interest rate they offer you reflects how comfortable they are with lending to your business. That comfort level is shaped by a range of factors.
Loan to Value Ratio (LVR) — The more equity or security you have relative to your borrowing, the lower your risk profile. Strong security provides the bank with a safety net, and lenders reward that.
Financial performance — A business with consistent revenue, healthy margins, and reliable cashflow is significantly less risky to lend to than one with variable or unpredictable earnings. Banks will review at least two to three years of financial statements. If your accounts reflect the strength of your business, this works in your favour.
Serviceability — Can the business comfortably service the debt? Banks want to see that your income covers your repayments with capacity to spare.
Business structure and documentation — Lenders want clarity. Organised financials, clear ownership structures, and up-to-date records make the assessment process smoother and reduce perceived risk.
Relationship and history — Tenure with a bank, a clean repayment track record, and consistent communication all influence how a lender views you as a client.
Practical steps to improve your position
Get your financials in order — Work with your accountant to ensure your financial statements reflect your business accurately and are presented clearly. If your profitability has improved recently, make sure the figures show it.
Reduce your LVR where possible — If you have the capacity to contribute additional equity or reduce your loan balance, even modestly, this can shift your risk rating.
Have a clear purpose for the funds — Lenders respond well to borrowers who can articulate what the money is for, how it will be used, and what the expected return or benefit is.
Shop the market, or get someone to do it for you — Many business owners stay with their existing bank out of habit. That loyalty has a cost. Working with a broker who can access multiple lenders means you are comparing real options, not assumptions.
Understand your current rate and when it was set — If it has been more than a year since your rate was reviewed, it is worth asking the question. The market moves. Your business may have strengthened. Both factors can justify a conversation.
When the banks reassess risk
New Zealand’s lending environment is shifting. As the Reserve Bank has eased rates and lenders compete more actively for quality business lending, there is genuine opportunity for well-prepared borrowers.
The businesses that benefit most are those that have been proactive: keeping their records current, maintaining strong relationships with their advisers, and positioning themselves as lower-risk borrowers before they need the money.
Jess Shaw is the Director and Financial Adviser at Vesta Finance & Advisory. Vesta provides specialist lending solutions for business owners and property investors across Hawke’s Bay.
