The Notes to the financial statements section of the prospectus is where you can find information on what's called related-party transactions.
One type of related party transaction is money lent to shareholders and directors, or the other businesses the shareholders or directors own.
Be particularly cautious about companies that do related-party lending. Finance companies may just be fronts for channelling funds into other projects that related parties - like shareholders and directors - are interested in.
One finance company made headlines recently when it used its shareholding in a second finance company to raise a 3-month loan. The initial finance company has also lent money to no less than 11 related parties - including $20 million to a company owned by a director.
Another that we looked at loaned $2.8 million to a subsidiary holding company, $1.1 million to a subsidiary insurance company, and made a personal loan of $225,000 to the director. This was all in the last two years.
Finance companies that lend your money in this way should be avoided.
According to a report by former investigative journalist Chris Rennie, the reason they do this is that often the business and credit history of a shareholder or director is so bad that they can't get a loan from a bank - so they set up a finance company and borrow from you instead.
Our tip
Avoid companies that do related-party lending. They're just recycling your money around the same group of companies.
Read what our members have to say close
To save money on essentials and make buying decisions easy, you can't go past Consumer. We're proud to have over 65,000 members all enjoying our independent information online or in Consumer magazine.
Here's what some of them say...
"Just wanted to let you know that I find your site excellent! Easy to find my way around, everything at my fingertips - just a click away.
I only took out a 3 month membership as I wasn't sure but it is actually really easy to use and if I want it on paper I can print the
reports. Thanks again".
Denise Watkinson - Waitakere
"My mother (74) got a renewal letter from her insurance company for her car insurance, wanting $570. After reading
your article on car insurance, I contacted one of the companies you recommended, who quoted her $318 for the same
level of cover. I just wanted to stay thank you very much for your article, as it has saved my mother a substantial amount of money".
Adrian Lane - Kapiti Coast
"I've been a member to the magazine since 1997 and enjoy reading it a lot. I've found lots of helpful information on different issues...
Thank you for being so helpful".
Peter Kovalenko - Porirua
"I have been a member of the Consumer NZ for 20 or more years and have enjoyed much reliable advice.
I turn to their tests before making significant purchases".
Lyndal Print – Auckland
Join Consumer now and make your decisions easy on a huge range of products and services
- Over 500 reports, plus interactive tools and calculators
- Independent advice from NZ's trusted source of information
- Join over 65,000 members who help us get all NZers a fairer deal
from just $28
Previous: Risk versus return
