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If you’re an employee working in someone else’s business, applying for a loan is a fairly straightforward process. As long as you have been in the job for three to six months, and can provide some recent payslips, you’ll be pretty much ready to go.
But for those that are self-employed, it can be a completely different ball game, and potentially it will be more difficult to secure finance. But it definitely can be done, and mortgage brokers can guide the way.
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If you’re a mortgage broker who’s knowledgeable in this area, you can actually stand to gain quite a lot of business, as a surprisingly high proportion of people fall into the self-employed category.
Your knowledge will start with understanding the bank’s policies in this area, and being aware of what benefits any one lender may have over another for your client’s circumstances. Some banks allow more flexibility for borrowing, while others provide a better opportunity for borrowing more. Know in advance what each lender will and won’t accept when it comes to self-employed loan applicants. Brokers need to make sure there’s a deal to put together before sending it to a lender – not only will this get the bank onside, but it will make sure you’re not wasting time.
Some self-employed borrowers worry that they’ll need to jump through all sorts of hoops to get finance – especially if they’re just starting out in their business – but this isn’t necessarily the case. While most banks will look at the person’s past two years of income and average it, some lenders will accept less. One of the major banks actually only needs to look at one year’s financials before making an assessment on what they’ll lend, as long as the ABN has been registered for two years. This is of huge benefit to people building a business; usually the first few years are tougher than the years to follow, so they won’t be hindered if they’ve only just started building momentum.
Self-employed borrowers will be constrained, though, by what they can borrow, certainly more so than someone who is employed by another business full-time. For instance, a full-time employed borrower has the ease of being able to borrow much more overnight if their income significantly increases, whereas a self-employed borrower won’t have the same luxury as they need to prove their income is sustainable over the long term. Lenders are reluctant to overcommit to someone just because they’ve had a good year – they might have contracts that won’t last the distance, and then they’ll be unable to service their loan. Many lenders looking at self-employed borrowers who have had their profits rise by more than 20 per cent will limit their borrowings to just that 20 per cent in growth to ensure it’s sustainable.
Another thing to be aware of is that some lenders require borrowers who have multiple businesses to just provide financials for the business that provides the bulk of income to the director. Should the director have more businesses, these lenders are happy to get a letter off the accountant to ensure they’re all trading profitably, but that’s as far as it goes. This makes the process much easier for those clients, and if brokers know this, they can save a lot of time and energy by going straight to the lender that has those requirements.
Ruan Burger, managing director, TIME Home Loans
Ruan Burger has been in the mortgage broking business for nearly a decade, starting out in the booming town of Gladstone after working in the banking industry for many years. He formed Time Home Loans early in 2013 after moving to Brisbane and the business has grown significantly since then.
Ruan is a nationally recognised member of the MFAA. During his career as a mortgage broker, Ruan has won – and been a finalist in – several awards. He won the MFAA Mortgage Broker of the Year award in 2012 and 2013 as well as the MFAA’s Award of Distinction in 2012 and was a finalist for the MFAA’s Credit Adviser award in 2014.
Ruan believes it is his ‘love of the game’, his strategic alliances and colleague morale that promote his business as a leader in the field.
