Not long ago, one financial adviser was heard to lament the Kiwi habit of using the mortgage to fund the business. Others turn to bank overdrafts or their personal savings – all of which some might argue are easy choices to make but not necessarily the best.

Research by YouGov, commissioned by small business lending specialist Prospa, found that 69 percent of SMEs use personal finances for business purposes – including credit cards – and one in four borrows from family or friends.

Approximately 21 percent had drawn down on the mortgage.

The difficulty of securing business finance from banks in New Zealand is well documented, but before you borrow or mix personal and business finance, consider the options below.

Self-finance

Consider reducing your costs as a way to self-finance your business.

Businesses incur costs, such as small but regular payments that slip beneath the radar. Work with your accountant to identify unnecessary expenses and ways to save on costs — review operational details like slow collections, bad debtors, and redundant or excessive inventory.

One consequence of tight cashflow is the failure to pay taxes on time. This leads to expensive Inland Revenue (IR) interest and penalty payments. Tax pooling with TMNZ will help save you money in the long term because you avoid interest and penalties.

Research alternatives

Tax pooling is an alternative and financially cost-effective way to meet your tax payments on time, but there are also many other ways to get business finance.

Government loan schemes, discount invoicing (you administer your sales ledger) or factoring (the factoring company administers your ledger) merit thought.

Other options may include attracting investors or turning to a second or third-tier lender who is more expensive, but you may not be required to put your house on the line.

Review payment terms

Together with your accountant, consider negotiating better terms with your debtors while also reviewing your current payment terms. Simply changing your terms to, for example, seven days with all new customers – or getting the agreement of existing customers – could make a big difference to your finances.

Ultimately, it may be that mortgaging your house is your best option but get expert advice first because easier isn’t necessarily better.