A small business accounting specialist is warning new bank lending restrictions which come into force today will make it tougher for people to buy, grow and fund small businesses.

Matthew Bellingham, chairman of the public practice advisory board for the New Zealand Institute of Chartered Accountants and a partner at Auckland firm Bellingham and Wallace, said new loan to value ratio restrictions would have "unintended consequences" on the sector.

From today banks must cap new lending on houses to people with less than 20 per cent equity to 10 per cent.

Bellingham said virtually all small business owners used their property as security and it was very common for those borrowing to have higher than an 80 per cent loan to value ratio.


"It's going to make it harder for people to buy a business, and one that concerns me more is when a small business requires some temporary funding. If they are going to need that money for more than a month, then that is going to make it really difficult."

Bellingham said he doubted the rule change would result in any business failures.

"I think what it will mean is they will have to turn to non-traditional financiers and debt-factoring to fund it."

Debt-factoring involves a business borrowing money against its sales invoices. When the money is paid it then goes into a separate bank account and is used to pay the debt down.

Bellingham said it was an expensive way to fund a business.

"It hasn't been that favourable because people have been able to leverage their property up for less."

Bellingham said a good business would always find capital.

"Our problem is we don't have a very strong venture capital market."

That meant business owners had to fund growth through debt, he said.

He predicted the pressure would go on small businesses with turnover of around $1 million to $2 million and said he was already in the process of going through re-financing with two companies. "The banks are doing their absolute best to help but are pointing to the rule change. There is clearly going to be an impact."

Bellingham said there had been little in the way of consultation with the business sector.

"I don't think that it has really been taken into account."

The Reserve Bank has introduced the new rules amid concerns about the rate at which house prices are increasing and the potential risk this poses to the financial system and broader economy.

Nick Stanhope, general manager business banking at the ASB said it was too soon to assess the full impact on small businesses.

"The lending restrictions may limit the ability of some business owners to invest in their businesses, however it is still too early to assess what the full impact might be."