7 Tips for Getting a Loan When You’re Self-Employed
Being self-employed works for and against you for the same reason – it’s flexible, writes Funding Options managing director Dom Cassisi.
A flexible schedule means you can do what you want with your time. It allows you to earn as much as you need and do what you want with your life.
Flexibility can also mean instability of income.
This is what can make it so tricky to get a loan. Without a stable and predictable income, banks and lenders aren’t eager to give you funds that you might not be able to pay back on a reliable basis.
Getting a loan is not impossible, however. Planning ahead could be a process of several years, but starting now will get you in best position for taking out a loan later on down the road.
1. Keep your debts to a minimum
Some debts can’t be helped, some debts can help your business, but you need to limit debt. Banks will to look at your current debt to determine whether you can handle another big one.
2. Bring the paperwork
Show your Business Activity Statement (BAS) from the past year or two to give the bank an idea of how profitable your business is. This is the best way to prove that you do have money coming in that will help you make regular loan repayments.
3. Have cash on hand
Save up for a deposit. If you have that handy in cash, a bank is far more likely to approve you for the loan. So start saving now!
4. Get professional help
Don’t try to do this alone. Along with your finance broker, seek advice from an experienced accountant who will help you figure out how much of your income should be taxed and how much to hold onto. Taxable income is what bank looks at to get you a loan.
5. Watch out for low doc loans
Banks will promote these for self-employed individuals because they have a higher interest rate attached and are simpler and cheaper for the bank to process. These are common but not necessarily your best option, so don’t settle for one too quickly.
6. Cooperation is key
The lender is legally accountable for ensuring that you are able to pay back what you borrow. No one can definitively predict your situation in the future if you’re self-employed. This naturally makes banks a little nervous. Additionally, banks cannot rely on the value of the house you put up as security, so they need assurance that you can pay back the loan in your current circumstances.
Be quick about submitting required documentation such as tax returns, BAS and bank statements. This will speed up your application process. Hiding information is pointless – the bank has to verify the facts and if you’re vague or withholding that information, they’ll have to research it. This only slows down the process. If you don’t cooperate, the bank will be less willing to work with you.
7. Check your facts
Make sure of a couple things:
- That you’re definitely self-employed and not technically an employee.
- That you’re applying for the right kind of loan.
Some lenders might view your situation as a sub-contractor as employee-status. This factor varies from lender to lender, so make sure to check in advance.
Having the wrong loan structure will cost you. You need the one that’s right for the job at hand. For example, a business loan tends to cost more than a home loan. But some lenders might let you have the business loan at home loan rates if you use a residential property as security. This will depend on personal circumstances, and it is crucial to seek advice from an experienced finance broker.
What's the next step?
Talk to the team at Funding Options to get some personalised advice. Getting a home loan despite being self-employed could be easier than you realise. Contact us now.
– Dom Cassisi, Managing Director