Finding finance for self-employed clients
Becoming your own boss is definitely a rising trend and while there are many perks to working for yourself, there are also some downsides, such as the potential difficulty in getting a loan when you really need one.
When your self-employed clients apply for a loan, they’re often met by wary lenders.
Typically lenders want applicants with sturdy, full-time jobs. The change in income from month to month makes many lenders uneasy, as there is no guarantee that loan repayments can be made and made on time - no matter how successful the business is. As bank credit policies tighten across the board, this is only getting worse - it’s not good news.
If your client is self-employed, their taxable income is often less than their ‘real’ income. Items are claimed on tax if they help your client earn their keep, such as rent, car expenses, utility bills or good old stationary. Of course, everyone is happy when they’ve claimed a bunch of stuff at tax time, but for someone who is self-employed, this means their income is less. This raises a red flag for lenders and they start to question how a loan could be paid.
But there is hope.
There are non bank lenders out there that cater specifically to self-employed clients, you just need to know where to look. That’s where I come in. I know which ones will give one of your clients a leg up and are more understanding of their situation.
What do they need to apply for a loan?
To apply for a loan, your client needs;
- their last two years’ worth of financial statements
- income tax returns
- up-to-date notices of assessment.
Securing low-doc loans
As the name implies, low doc loans require fewer docs when applying and can be a great option. A year’s worth of GST statements is often needed, which includes a self-employed applicants income before tax write-offs. Some lenders will then use a percentage of your self-employed clients turnover as income, which will increase their chances of getting a loan. I can put your clients in touch with lenders that follow these rules to suss out what’s possible.
Self-employed for less than two years
If they’ve been self-employed for less than two years, they can still get a home loan, but it’s trickier. Most lenders will want proof they have more than two years’ experience in their industry. For example, a self-employed carpenter will need to have been a carpenter previous to running their own business. Loan hack: If they’re leaving a salaried role, get them thinking ahead to keep old payslips and exit with a reference.
Securing car loans
Something to note is that car loans are much easier to secure, because the credit scoring process isn’t so tough. But banks and lenders will still have a good look at your client’s financials so they need to be prepared.
Self-employed finance can be challenging terrain to navigate, so you need a solid adviser. One who knows their stuff and knows which lenders have favourable criteria for your self-employed clients. If you know someone like this who has questions about qualifying for a home loan, or any other loan, call me. I fit the job description and with my panel of NZ’s widest range of banks and lenders to tap into, I can help find a highly competitive loan to meet their needs and circumstances.