Investing vs buying a business in New Zealand: a franchise, or secured income?

Investing vs buying a business in NZ is a choice between a job and an income. A business or franchise may later sell for more than you paid, but it takes your time and brings staff, a lease and trading risk. Co-funding property-secured loans pays 12% to 18% p.a. with nothing to run, though the capital never grows.

We hear the question often at HomeSec Business Finance, a private business lender lending since 2004, with its New Zealand office in Auckland, which invites wholesale investors to co-fund some of its loans. Many people who contact us have just spent months looking at a café, a franchise or a trade business, and have stepped back to ask something plainer: what do I want this money, and my time, to do?

What are you really buying with NZ$500,000?

A business purchase at this level usually buys three things at once: an income, a role and an asset. Someone with NZ$500,000 to NZ$1 million, perhaps just out of a corporate career, off the farm, clear of their own business or home from years overseas, may want only the first of those, plus some independence.

Franchising can look like the tidy route. The brand is established, there is an operations manual and a support office, and the sector is large: the Franchising New Zealand 2024 survey measured turnover of about NZ$73.4 billion, a figure that includes motor vehicle sales and fuel retailing. But a franchise is still a business someone must run every day, and that someone is usually the buyer.

Co-funding secured loans unbundles the three. It offers the income without the role, and in exchange it gives up the asset that could grow.

What protections does a franchise buyer have in New Zealand?

Fewer than many buyers expect. New Zealand has no legislation written specifically for franchising. Buyers rely on general law instead: the Fair Trading Act 1986 prohibits misleading and unconscionable conduct, the Contract and Commercial Law Act 2017 gives remedies for misrepresentation, and the Commerce Act 1986 restricts anti-competitive terms.

The industry’s own rulebook is the Franchise Association of New Zealand’s Code of Practice and Ethics. It requires a disclosure document at least 14 days before signing and a cooling-off period of not less than seven days. Yet the association states that only its members are required to abide by the Code. Its 2025 revision replaced detailed financial disclosure with a solvency certificate, and a buyer may now decline independent advice by signing an acknowledgement.

In practice, the checking is yours to organise, with a lawyer and an accountant who know franchising.

What does running a business cost beyond the purchase price?

• People. Hiring, training, rosters, sick cover and the conversations nobody enjoys.
• Premises. Rent reviews, fit-out obligations and whatever the lease demands when you leave.
• The franchisor’s cut. Royalties and marketing levies come off the top, and refits happen on the network’s timetable rather than yours.
• Competition and reputation. A new outlet down the road, one poor review or a problem elsewhere in the network can cut takings quickly.
• Hours. Owners often work far longer than planned, particularly in the first few years.

The wider climate is not easy for small firms either. In November 2025 the Reserve Bank reported company liquidations above historical averages, especially among SMEs, construction and hospitality, with Inland Revenue initiating about 70% of them. Credit costs small operators more too. Across the past three years, small New Zealand firms paid spreads of about 390 basis points over the 90-day rate, against 280 for medium-sized firms, and University of Auckland research published in May 2026 found banks still asked for personal guarantees and property security.

When is buying the business the better choice?

Ownership has a strong case, and it deserves a fair hearing.

Upside. A business that is run well can be worth considerably more when you come to sell. A loan hands back your capital and the agreed interest, and that is the ceiling.

Control. Strategy, hiring, pricing and opening hours are your decisions.

Purpose. For people who want to work, a business supplies a role, a team and a place in the community.

A good year pays. A strong operation can earn its owner a wage and a profit well above any fixed rate.

If building something appeals and you are happy to turn up every day, ownership may well be the right call.

How does co-funding a secured loan work?

Co-funding means lending into one particular loan alongside HomeSec, which does the sourcing and assessment. Each loan is checked against a 50-point due diligence checklist, and a due diligence pack arrives by email covering the property, the borrower, the purpose, the exit, the LVR, the term and the rate. You decide whether to take part, and with how much. There is no obligation.

If you go ahead, the loan agreement is drawn up in your name, or your company’s or trust’s. The borrower signs with their own lawyer, the mortgage is registered with LINZ naming you for your exact contribution, and you transfer funds from your own bank account at settlement. Repayments of principal and interest come straight back to that account.

The loans run for typically 1 to 12 months over New Zealand residential or commercial property, at no more than 80% LVR on residential and lower on commercial, with no construction or development lending. HomeSec puts its own money into every loan it offers. Borrowers are mostly established businesses drawing on equity in property they own, paying more for speed and flexibility, with decisions within hours and settlement possible within days. Co-funding is a way to back New Zealand business owners without becoming one. How co-funding works walks through each step.

How do owning and co-funding compare side by side?

What might NZ$500,000 earn?

Nobody can state a typical business’s earnings in general terms. They depend on location, brand, management and the wider economy, and advertised figures often come before the owner’s own wage.

Co-funding is easier to model. As an illustration, before tax, assuming the money is lent for the full year and repaid on time:

Because the amount per loan is yours to choose, from NZ$100,000, NZ$500,000 can sit across two loans or more. Income only accrues while money is lent, so gaps between loans reduce it. The interest is taxable, with RWT at your RWT rate, but carries no GST, because lending is an exempt supply. No wages, rent or royalties come out of it first. Returns explains how each loan’s rate is set.

What are the drawbacks of lending instead?

Lending carries its own risks, and it suits some people better than others.

• Default. A mortgage can be enforced under the Property Law Act 2007, beginning with a default notice of not less than 20 working days, and a mortgagee sale then takes months. HomeSec manages the process with specialist lawyers and has its own money in the same loan. Risks and protections covers the detail.
• A handful of loans, not hundreds. Each loan rests on one borrower and one property, so spreading NZ$500,000 still leaves only a few positions.
• No capital growth. Nobody pays you a premium for your loan share ten years on.
• Wholesale only. Co-funding is open to wholesale investors, most often eligible investors.

What you do get is visibility. The pack puts the property, the LVR, the borrower and the exit in front of you before any money moves.

Can you do both, or one after the other?

Yes. Someone who has agreed to buy a business that settles in several months can lend in the meantime, choosing loans that mature before settlement. Someone who has just sold a business can take a year of loan income while deciding what comes next, knowing HomeSec will purchase their share and return the principal on request if an opportunity turns up. Short term investments for large balances covers that waiting period, and where to invest $1 million in New Zealand shows how larger sums are divided.

As a rule of thumb, a business suits people who want to work, enjoy leading a team and serving customers, and want something to build and sell. Co-funding suits people who have already built something and would rather their capital earned without needing them.

What is the next step?

Before you sign a franchise agreement or a sale and purchase agreement for a business, write down what you want from the money and from your hours. If the answer is income rather than a job, register your interest and our Funding Manager will be in touch to show you a real loan pack.