It can appear to be a frightening experience because self-employed people are faced with more hurdles compared to the average salary earner. And though a self-employed person may be earning well, it’s not often steady.
Don’t worry – the majority of financial institutions appreciate the nature of erratic cash flow for self-employed workers, and are keen to assist when you apply for a business, home or personal loan.
Keep your eye on the future
According to Justin Lindbeck of Yellow Brick Road, self-employed workers are typically hesitant about getting in touch with a financial institution for a loan.
He says, “There are always exceptions to policy based on too many factors to list here, so it's always worth exploring.”
“Every person and their circumstances vary dramatically and each are assessed on a case by case basis,” adds Lindbeck.
Do your assignment
It doesn’t matter if it’s a personal, home or business loan, self-employed workers should do their assignment. Shop around, and find that loan that would best fit your particular requirements at this moment, or in the future.
Then, set up an appointment with your chosen mortgage broker or lender and arm yourself with a solid business plan.
Create a business plan
Answer the questions below to present a solid case:
- What do you need the loan for?
- In what way will it help your business?
- What strategy have you set up to repay the loan?
And don’t forget to ask yourself this: Would I, or a close relative or friend, loan the money to me without hesitation?
If the answer is ‘no’ or ‘probably not’ then work out why and rectify it!
Round up your financial statements
To begin with, it’s vital that self-employed individuals turn over two years’ worth of financial statements.
You must provide:
- Personal tax returns
- Company tax returns
- Profit and loss statements
- ATO assessments
- Tax portals
- Balance sheets
The financial statements that have been submitted to the tax office are the best, as they’re the real numbers.
The specific information lenders need will depend on your individual situation. But the main thing is they’ve got to have a sense of your numbers so don’t be surprised when the bank or your broker asks you for this information.
Show commercial capability
From the bank’s point of view, the processing of a loan for a self-employed person is a little bit more complicated than an ordinary loan application but it doesn't necessarily mean that the outcome of the application of these individuals are any less positive.
After all, banks provide loans for self-employed people every day of the week. It just requires a bit more work to figure out the person’s capacity to repay the loan.
The main message here to the self-employed: You’ve got to be organised.