Why owners end up with expensive short-term debt
Short-term private lending has its place. When a bank declines and something has to be paid this week, a private lender who moves fast can be the difference between trading on and shutting the doors. The trouble starts later. Short-term loans are designed to be short. If the plan to repay them doesn’t happen on time, because the property didn’t sell, the bank still said no, or trading didn’t recover, the loan can roll into extensions, default charges and mounting cost.
We talk to a lot of owners in that position. The loan did its job, and now it’s the problem.
Signs it’s time to refinance
- The loan expires within the next three months and there’s no confirmed exit.
- You’ve already had one extension, or been offered one at a cost.
- Interest is capitalising, so the balance is growing rather than shrinking.
- The repayments, or the rolled-up interest, are eating into equity you’ll need later.
- You’ve been charged default interest or fees for missing a date.
How refinancing out works
A refinance replaces the existing loan with a new one. At settlement, the new lender pays the old lender their payout figure, the old mortgage is discharged, and the new one is registered. It’s the same mechanism used for any mortgage switch.
What changes is the structure. Depending on the situation, a refinance can:
- Extend the runway with a term that matches a realistic exit.
- Consolidate other debts such as IRD arrears or supplier accounts at the same time.
- Move from a first to a second mortgage, or the reverse, where that makes sense.
- Release some working capital, if the equity supports it.
Every loan is priced on the individual circumstances. Our specialists look for the sharpest option available for your situation, and we’ll tell you honestly if a refinance won’t improve things.
What lenders need to see
| They’ll ask about | Why |
|---|---|
| The current lender’s payout figure | So the new loan clears everything, including fees |
| The property and valuation | To confirm there’s enough equity |
| Why the original exit didn’t happen | To judge whether the new plan is realistic |
| The new exit strategy | Refinance to a bank, sale, or repayment from trading |
| Any other debts, especially IRD | To avoid clearing one problem while another grows |
The exit is the heart of it. Our guide to exit strategies for short-term loans explains what a lender needs to see and why a vague “we’ll refinance later” isn’t enough.
Example scenario
Example scenario — for illustration only. A Christchurch builder had taken a short-term private loan secured on a section he owned, to fund materials for a job. The client paid late, the loan expired, and default charges started. The section also had rising rates arrears with the council. A new first mortgage over the section, plus a second mortgage over the family home for the shortfall, repaid the private lender and the council and gave him a realistic runway to build and sell.
Getting started
Find your loan agreement and the expiry date, and ask your current lender for a payout figure. Then start an enquiry. The earlier we talk, the more options you’ll have.