Banks have long treated finance for self-employed Australians with an extreme sense of caution, but the good news is that it’s not impossible to get approved.
From freelance writers, to tradesmen and even lawyers, self-employment can provide a great deal of job flexibility and autonomy – after all, you’re the boss. However, prospective lenders tend to view this with a greater degree of employment risk and often have serious concerns with income volatility.
When it comes to mortgages and personal loans, sourcing finance for self-employed Aussies has proven to be difficult in the past for many. According to the Australia Bureau of Statistics, more than 60% of small businesses cease operations entirely within their first three years of trading. This is one of the primary reasons as to why obtaining finance as a sole trader can considered to be risky business from the view of many lending providers. Self-employed people may also struggle to prove their income and any assets owned, which only makes it harder to meet the standard lending criteria.
However, the good news is that it’s not all doom and gloom. Many banks and lending providers are considered to be more flexible than others, and there are many methods that self-employed prospects can deploy in order to obtain that illustrious pre approval status – so where do you start?
Five Tips On Getting Finance For Self-Employed Australians
If you’re self-employed and looking to get a loan, then you are usually required to provide a more in-depth paper trail when compared to the average applicant. Mistakes can arise when dealing with inexperienced employees, complex applications, and even assumptions surrounding the information you provide. If you want to get approved on the “first go”, here are a few key insights to pay attention to in order to avoid any potential disappointment.
Timing Is Everything – To get approved for a home loan, most lending providers require self-employed applicants to have at least two to three years of earnings under their belt from this type of working status, purely to ensure your income is stable and established. However, some will consider applicants who have been self-employed for as little as one year, provided they have previously worked in the same industry or sector prior to striking out on their own.
Be Transparent – One of the primary hurdles to overcome when it comes to finding finance for self-employed applicants is proving their status as a good loan applicant, or in other words, attempting to ditch the “risk” factor. Applicants can do this by providing personal and business income tax returns for the previous two years at a minimum, along with the profit and loss statements derived from their business. Above all else, lenders want to see consistency, so be clear on the numbers.
Improve Your Cash Flow – The status of a brand’s cash flow is often a key indicator when it comes to assessing the overall health of a brand, enterprise or business. Paying off any outstanding debts such as credit cards or personal loans will positively impact your cash flow – and potentially your personal credit score – which can also enable you to qualify for a higher loan amount with some lenders.
Boost Your Deposit – Like any standard home loan applicant, the bigger the deposit, the better. Even as a self-employed sole trader or entity, a larger deposit shows the lender that you’re a lower-risk borrower, financially disciplined, and committed to the long game when it comes to managing your finances. A larger deposit can also give applicants access to more favourable terms such as lower interest rates.
Deploy A Financial Planner – One of the best ways of getting a preapproval as a self-employed applicant is to enlist the services of a fully qualified professional. More often than not, if you’re dealing directly with a bank, your application will be handled by a staff member that doesn’t specialise in self-employed loan options or products. The services of a financial planner or adviser can be a game changer when it comes to setting you up as a favourable candidate.
Sourcing Financial Advice If You’re Self Employed
If you are ready to “level up” and get financially fit, then it’s never too early to seek professional financial advice. Whether your next goal is to retire early, take a gap year or purchase a home, George Samios and the team at Madd are ready and waiting.
With their entire business built on referrals, the team at Madd Loans have taken the mortgage broking industry by storm. Their overwhelmingly positive feedback has helped them to take out numerous industry awards, including the title of “Queensland’s Broker Of The Year” for four consecutive years. After working with a broad variety of clients in relation their mortgage options, it made sense for the team at Madd to have the capacity to offer a full financial planning service.
As a result, Madd Life came to being in late 2019. Madd clients come from all walks of life, including the self-employed. George and the team are now fully able to support, and in turn kickstart, all their client’s financial goals by giving tangible real world advice and a plan of attack as to how to get there.
If thinking about your financial future strikes a chord with you, then it might be time to speak to a professional. Whether you’re chasing mortgage solutions, or a financial fairy godmother, the team at Madd work together as a collective to turn your goals into reality.
