Almost every business has a bad year eventually. A big customer goes under owing you money. Costs spike. A key staff member leaves. Illness, a flood, a road closure, a building that turned out to be earthquake-prone. Lenders know this — the people assessing applications have seen every version of it.
What they can’t work with is silence or vagueness. A clear explanation turns a red flag into a data point. Here’s how to give one.
Why the explanation matters so much
When an assessor sees a loss, a default or tax arrears, they’re trying to answer one question: is this likely to happen again while you owe us money? Your explanation is your chance to answer it for them, with evidence. Leave it unanswered and they’ll assume the worst.
The four-part framework
Keep it to about two minutes spoken, or half a page written.
1. What happened
One or two sentences. Facts only.
“In the year to March 2025 we made a loss of about $70,000, and we fell behind on GST and PAYE.”
2. Why it happened
The real cause, specifically. Not “tough times” — everyone has tough times.
“Our largest client, a builder who made up about 40% of our work, went into liquidation in October 2024 owing us $95,000. We’d already paid for the labour and materials.”
3. What you did about it
The actions you took. This shows judgement.
“We filed a claim with the liquidator, cut two subcontractor crews, set up an IRD instalment arrangement for the GST and PAYE in January 2025, and started tendering directly to homeowners and two new builders.”
4. What’s different now
Why it won’t happen again, with numbers where you can.
“No client is more than 20% of our work now. We take deposits and progress payments on every job. Our last six months of bank statements show steady deposits, and the IRD arrangement has been paid on time every month.”
That’s it. Four parts, and a lender understands exactly where you stand.
Back every claim with evidence
An explanation is far stronger with proof. Depending on your situation:
- Recent bank statements showing recovery — steady deposits, no dishonours, tax payments going out. Our guide on what lenders look for in bank statements explains what they read.
- Paid default notices or letters confirming settlement of old debts.
- IRD records showing an instalment arrangement kept up to date, or arrears cleared.
- Current management accounts from your accountant or accounting software.
- Contracts, a forward order book or purchase orders.
- Correspondence — a liquidator’s report, an insurance claim, a council notice.
Common situations, and how to frame them
A loss in the last filed accounts, but trading is better now. Lead with the current position, backed by recent bank statements. Property-secured lenders don’t need financials for the initial assessment, and cash flow lenders look mainly at recent statements.
Defaults on your credit file. Say when, how much, why, and whether they’re paid. A paid default reads very differently from an unpaid one. See business loans with bad credit.
Tax arrears. Show that returns are filed, what’s owed, and any arrangement. Clearing IRD debt is itself a common, legitimate purpose for a property-secured loan.
A previous business that failed. Explain what happened and what you learned. Your experience since matters more than the failure itself.
Personal circumstances. You don’t need to share private details. “A serious family illness took me out of the business for four months in 2025; I’m back full-time and a manager now runs day-to-day operations” is enough.
What not to do
- Don’t blame everyone else. Even if a client or supplier caused it, show what you’d do differently.
- Don’t minimise. “Just a small default” when it’s $18,000 undermines trust.
- Don’t over-explain. A ten-minute story buries the important points.
- Don’t hide things. Credit files, IRD records and bank statements will show them anyway.
- Don’t wait to be asked. Raise it on the first call.
Example scenario: a hospitality downturn
Here’s how the framework sounds for a cafe owner — an illustrative scenario, not a real client.
What happened: “Our FY25 accounts show a loss and we have about $38,000 in GST and PAYE arrears.”
Why: “Road works outside the cafe closed our street to through traffic for seven months, and weekday takings fell by around a third.”
What we did: “We cut opening hours, moved to a smaller menu, started a catering service for local offices and set up an IRD instalment arrangement.”
What’s different now: “The road reopened in March. The last five months of bank statements show takings back above pre-works levels, catering is now a steady share of revenue, and every IRD instalment has been paid on time. We’d like to clear the arrears in one go so we can refinance to the bank next year.”
That takes about ninety seconds to say, and it answers every question an assessor would ask.
Where to use your explanation
- The first call. Tell the specialist up front so they can match you to lenders whose criteria fit.
- The application. Many applications have a notes section; put the four-part explanation there.
- The lender’s questions. If the assessor calls, you’ll already have the answer ready.
Practise it once
Say it out loud to your accountant, business partner or spouse. If it takes more than two minutes, or they ask “but why?”, tighten it.
Ready to talk?
Our lending specialists have heard most versions of this story, and they don’t judge. Ring the Hotline and tell us what happened, or request a call back.
Ready when you are. Ring 09 875 4577 or request a call back — a lending specialist will talk it through.