Navigating self-employed loans

Despite self-employment having many perks, it has its challenges as well. One of them can be the increased difficulty in securing a loan, whether it be an actual self-employment loan or a personal loan, a home loan or a car loan, etc. And if your client does get a loan, they may not be able to borrow as much as they'd like and they may need to pay a higher rate.

That’s because traditionally lenders have been hesitant to provide money to people who work for themselves, due to concerns about financial instability. But self-employment is becoming more common—according to the Australian Bureau of Statistics findings in 2015, 11.2% of the population work for themselves. This percentage is expected to have risen since the research was completed. With this change, lending processes are bound to adapt, but in the meantime there are things they can do as a self-employed person to increase their chances of being approved.

Lenders want to know that your client is able to make their repayments, so showing they're organised and responsible will give them a good impression. They should get their records in order as soon as possible, as they'll need to provide two years’ worth of income tax returns, financial statements and up-to-date notice of assessments.

Financial statements which weren’t lodged with the ATO won’t be counted, but they can provide a year’s worth of BAS statements if they have them. The lender will assess these documents as well as the last two years of their income (or the lower income of the last two years).

If they're not on top of their business paperwork, they should make an appointment with an accountant to get it sorted. Mortgage brokers are there to help through the loan process and can explain the ins and outs of what is involved. A broker will also be able to present your client's loan application strongly, giving them a better chance in getting the loan.

While there is still some reluctance to lend to people who work for themselves, it’s worth for your client to check if they are actually self-employed. It might sound silly, but a person may be considered a contractor or sub-contractor if their work involves doing a service for someone else. Many self-employed people fall into these categories, and they can make it easier to get a loan as they'll be viewed as less of a risk.