Does your client work for themselves? What they need to know about self employed loans
The lure to be your own boss appeals to many. Working full-time for someone else is no longer the norm, with many Australians now opting to work for themselves instead. While there are many perks to working for yourself, there are also downsides, such as potential difficulty in securing a loan.
Banks can be hesitant to provide loans to self-employed people due to income fluctuations and perceived instability. Is your client self-employed? Are you sure? They may be able to get out of the self-employed category by considering what their employment arrangement is. Does their job allow them to be considered as a contractor or sub-contractor? Some lenders may not consider these categories as being self-employed, so taking this route could make the process a lot easier.
Once that’s confirmed, you’ll need to check they have all the paperwork required and that they’re keeping good records. Maintaining records can be a task that falls by the wayside in a self-employed business, with no HR or Accounting team to follow up with. It may not be the most fun task, but recommending they take the time to establish a filing system that works for them will mean they are a lot more organised and ready to go.
For the loan application they will need to provide the previous two years’ worth of financial statements, income tax returns and up-to-date notice of assessments. A year worth of BAS statements are sometimes accepted by lenders when applying for a home loan. These statements give the lender insight into their business’ turnover and helps them to work out how much can be borrowed based on their income. The last two years evidence of their income, or the lower income of the last two years, will be assessed by the bank. They rarely accept financial statements not lodged with the ATO, so these won’t be sufficient.
By knowing what to expect and what they will need when applying for a self-employed loan, what can be a challenging process becomes a lot easier.
Disclaimer: This document is for discussion only, and not to be construed as providing advice. It is recommended you consult a lending specialist to assess its applicability to your clients’ personal circumstances.