Self Employed Borrowing


I speak to self employed people quite regularly and it is surprising how many are terrified of moving their finances just because of the hoops that they believe the banks will make them jump through. Two main things matter, the length of time you've been self employed and the amount you earn.

Time in business is relatively straight forward. 2 years is pretty standard but there are exceptions. The exceptions require that you get a letter from your accountant though veirfying your ability to make repayments and that your income is what you say it is. The catch being udner 2 years is that you are a higher risk in the banks eyes and that in turn will see you pay a higher interest rate. These loans are known as aternate doc loans or "lo-doc" loans.

Income is incredibly important for obvious reasons. The calculations for this mainly rely on tax returns and business financials such as the balance sheet and income statement (profit and loss). The average of 2 years income is the general requirement of the banks to assess your income but there are exceptions to that as well. Some will accpet 1 years income. On top of using the net profit of the business there are opportunities to add to your profit based on yoru financials. If your business has a depreciation expense this can be added to your annual income. If you are refinancing any debts, the interest charges on those debts can be added to your income also as the interest charge will be calculated in the new loan application. 

Scenario: You have an average income of $150,000 a year over the last 2 years. You can add the depreciation of vehicles and furniture to that total. If you have a credit card that was charged $4000 in interest a year that you are closing with the funds being applied for on your home loan you can add back the interest charge from the credit card.

It's not impossible to borrow money as a self employed applicant and having a good broker work with you is a great way to ensure you're not making a credit enquiry for no reason as we can assess your income against bank requirements before an application is submitted.