Type ‘self-employed home loans’ or ‘finance for self-employed business people’ into Google and you’ll probably end up thinking that your lending choices are very limited.
But before locking in your next loan, make sure you do your research thoroughly and understand all the options open to you to help find the finance that benefits you the most.
Running your own business can be challenging at times and being made to jump through hoops when you are applying for finance can add to the stress.
The positive news is that business owners can find lenders who are more open to dealing with them and, by discussing your situation with a professional finance broker who understands the unique issues that self-employed people face, you can find finance solutions to help you.
Whether it’s a home loan, car loan, or personal loan – or a business loan to help you finance new equipment for your business growth – dealing with an experienced loan broker can mean the difference between getting your loan application turned down and getting the good news that your finance application has been approved.
As someone used to making your own way in the business world, you’ll know that success in business comes from getting the little details right.
Approaching your finance applications should be no different.
Proof of Income Is Important
The main issue that self-employed borrowers face is that it can be more difficult for a potential lender to work out whether you can afford to meet your repayment obligations.
In many cases, a PAYE borrower simply provides one or two pay slips to prove their income, while a self-employed person has a much more complicated financial situation. For self-employed business people, income is not consistent or guaranteed and the lender will need to examine profit and loss statements, and understand that these statements are often two years old and may not properly reflect the current success of the business – and its potential future growth.
The process can seem frustrating for small business people hungry for finance, but it is important to realise that a lender making sure a borrower can actually afford future repayment obligations is a legal responsibility that a lender must adhere to – and it is not just a case of them trying to make your life difficult.
To help you find finance that suits you, try these 7 tips for self-employed borrowers:
1. Look for the best possible offer
Before committing to any finance application, don’t simply go to the bank where you have your existing accounts.
Banks rely on the convenience they offer and they know that they don’t have to work hard – or offer great deals – to win your business. You can usually find a better deal elsewhere if you look.
2. Is your financial information up-to-date?
Be prepared with up-to-date and accurate financial statements, income tax returns and notice of assessments. (Banks rarely will accept financial statements that have not been lodged with the Australian Taxation Office).
And, from July 1, with debt to the ATO now listed on your credit history, lodging your taxation-related paperwork can have an impact so it’s best to be prepared and plan your finance application properly, to ensure you tick all the right boxes for financing success.
3. Are you self-employed?
Before applying for any finance, it’s smart to check if you really are considered to be self-employed. If the more accurate description of your role is a contractor or sub-contractor, in some cases lenders may view you as an employee.
4. What are your claimable business expenses?
The most expenses you can claim, the more your income increases – and this can be the difference you need to help a lender determine if you can afford a loan.
Some claimable expenses include:
- Car allowance
- Excess superannuation contributions
- Non-Recurring Expenses
- Non-Cash Expenses
5. Quarantine your loan structure
If you’re self-employed, you are more likely to be able to claim some of your interest as a tax deduction, so to help you maximize that opportunity, it’s important to have the correct loan structure from the start.
The best person to talk to for this type of advice is your accountant.
6. Make your cash flow work
Making your cash flow work can save you interest. Try setting up a high-interest yielding account where you are rewarded for deposits and no withdrawals for specific periods. Use this to park your GST, for future payments to the ATO.
By thinking about your future and assessing how your financial needs are likely to change, you can save yourself the worry of having to re-structure your loan in the near future. Getting the right advice from an experienced loan broker can set you on the right path. Always do your best to protect your credit history, because if this credit history is compromised with late bill payments, you can impact your ability to access a variety of loan options and it can be limiting.
Finance can be a great thing for small business people and by choosing the finance that suits you, you can help build your business and personal assets in a way that helps set you up for a healthy financial future.
If you need advice for a home loan, business or commercial loan, self-managed super fund loan, or an investment home loan, speak to a broker at Lending Specialists. We have a wealth of experience under our belt and a robust network to connect you to the right industry professional for the loan you need.