Non-Bank Lenders in New Zealand | Opportunity, Risk, and Strategic Fit for Borrowers

Non-bank lending has grown rapidly in New Zealand, filling the gaps left by traditional banks. For borrowers with non-standard income, complex structures, or credit issues, non-bank lenders can offer valuable flexibility. However, this flexibility comes with trade-offs that must be managed carefully.

The Current Landscape:

Non-bank lenders now hold more than $20 billion in total lending, with housing representing a growing portion. They specialise in niche lending areas such as bridging finance, development loans, and non-conforming credit. These lenders face lighter regulation than banks but are under increasing scrutiny from the Financial Markets Authority and Reserve Bank. Their pricing reflects risk, meaning higher rates or fees compared to major banks.

When Non-Bank Lending Makes Sense:

Non-bank options are often ideal for borrowers who fall outside traditional lending criteria. For example, self-employed professionals or those with irregular income may benefit from the more flexible assessment processes that non-bank lenders use. Clients who need short-term or bridging finance also find value in faster approvals and tailored repayment terms, particularly when timing is critical.

Development and construction projects are another area where non-bank lending can shine. These lenders can structure milestone-based drawdowns and provide creative funding options when banks are too rigid. For investors with complex portfolios or multiple entities, non-bank lenders may offer more flexibility in securing loans across several properties or ownership structures.

However, every benefit comes with considerations. Higher rates, shorter loan terms, and the need for a clear refinance or exit plan are common. Advisers should ensure that clients fully understand the financial and legal implications before proceeding.

Key Risks:

1. Higher cost of capital. Rates and fees are typically higher than mainstream lending.

2. Refinancing risk. Short-term loans depend on a clear exit plan; missed timelines can be costly.

3. Liquidity risk. Some non-banks rely on wholesale funding, which can tighten during market stress.

4. Regulatory risk. Future rule changes could affect their lending capacity or product design.

5. Transparency. Borrowers must read terms carefully to avoid hidden costs or penalty traps.

Best Practice for Advisers:

1. Use non-bank options as a complement, not a default.

2. Compare total cost of borrowing under multiple scenarios.

3. Build cash buffers or interest reserves.

4. Always document a clear exit or refinance path.

5. Review the lender’s reputation and financial strength.

Non-bank lenders offer real value for borrowers who need flexibility, but they are not a one-size-fits-all solution. With strong advice and disciplined planning, they can fill gaps that banks cannot, without adding unnecessary risk.