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Small business experiences financial difficulty

Sinead has a cleaning business employing five other cleaners. When New Zealand went into COVID-19 lockdown, Sinead’s business struggled, and she started receiving the unemployment benefit. As New Zealand started to emerge from the COVID-19 restrictions, Sinead started to build her business up again and applied for a business loan towards the beginning of 2021. The loan application was successful, and Sinead met all the loan repayments. The loan was topped up in December 2021 and Sinead continued to repay the loan without difficulty.

In April 2022 Sinead contacted the lender saying that she was having cash flow difficulties and asked for a $7,000 loan top-up so that she could pay her employees. Although Sinead was still on a benefit, she was confident that business was improving and could afford to repay the loan. Sinead asked the lender to extend the term of the loan so that the weekly repayment amount of $318 would not increase.

The lender came back to Sinead with three options:

  • a $7,000 loan with repayments of $435 a week
  • a $6,000 loan with repayments of $416 a week
  • a $5,000 loan with repayments of $397 a week.

Initially Sinead said she wanted the $5,000 option but, as the conversation progressed, Sinead said she would prefer the $7,000 option because it would enable her to pay her staff and purchase some new equipment which would increase her income.

Sinead accepted the lender’s offer of an additional $7,000 increasing her loan balance from $16,000 to $23,000. The lender also agreed to defer payments for four weeks to give Sinead time to improve her business cashflow with the new equipment.

Unfortunately, Sinead defaulted on the first loan payment and continued to have financial difficulty, defaulting on payments and incurring considerable default fees.

In August Sinead went to a financial mentor for help. The financial mentor was concerned that the lender had not met their responsible lending obligations under the Credit Contracts and Consumer Finance Act 2003 (CCCFA) and asked for the lender’s affordability assessment. The lender refused to give the financial mentor the affordability assessment saying it was commercially sensitive so the financial mentor, on Sinead’s behalf, complained to FSCL.


The financial mentor said that while Sinead was a very good cleaner, she was not experienced in running a business and did not fully understand her obligations under the loan agreement. The financial mentor noted that Sinead was on a benefit which should have indicated to the lender that the business was not viable. Sinead had said that she didn’t want her loan repayments to increase, yet all the options involved a substantial repayment increase. The financial mentor also said that the lender did not appear to have met their responsible lending obligations and had not properly assessed Sinead’s ability to repay the loan.

The lender was comfortable with their decision to lend but offered to:

  • reduce the loan balance from about $33,000 to $31,000
  • reduce the payments from $435 a week to $300 a week
  • not charge any additional fees provided the repayments were made on time.


We explained to the financial mentor that because this was a business loan, the responsible lending obligations in the CCCFA did not apply to Sinead. Although Sinead was on a benefit, the bank statements she had supplied to support her loan application showed sufficient income from her business to meet the new loan repayment amount. We could not see that the lender had breached any legal obligations.

In our view, the settlement offered seemed reasonable and we asked the financial mentor whether she would reconsider the lender’s offer. When she first complained, the financial mentor had not known that the CCCFA did not apply. Although the financial mentor remained of the view that the lender should have been more careful when lending to a small business where the business owner was an unsophisticated borrower who was on a benefit, she was prepared to discuss the settlement offer again with Sinead.


Sinead agreed to accept the settlement offer and the complaint was resolved.

Insights for consumers and participants

The responsible lending obligations in the CCCFA provide protection for the consumer, however there is no equivalent protection for small businesses. Small businesses can be an extension of the individual consumer, often guaranteed by the business owner. It is in both the lender’s and borrower’s interests that loan repayments are affordable allowing the debt to be repaid without difficulty.