When you are self employed you enjoy the freedom of working your own hours (often far more and at the strangest time of the day), directing your own life and creating an income and an asset at the same time.
You’re also savvy and you use the resources available to you to your best advantage – your accountant encourages you to claim the electricity you spend in your home office, your phone and internet bill, and anything else used in the legitimate course of business – brilliant!
But this gets complicated when you look at borrowing money, doesn’t it? The lenders have to prove you can afford any loan that you’re considering, which is great, but they don’t necessarily allow for the things your accountant has helped you to claim.
The good and bad news is there are dozens of lenders who will look at you in completely different ways – our job is to find the right one just for you – lets consider
Haven’t quite got your tax returns up to date?
- Providing you’re not trying to borrow the full value of your home there are lenders who will consider you on a “low doc” basis – There are lenders who will:
- Consider your trading statements
- Consider your lodged BAS statements
- Take a declaration from yourself and or your accountant
- or a combination of the above
Do expect to pay a little more for this type of loan, but not too much
Big difference from one year to the next – say the business is growing?
- Most average the last two years income
- Some only allow for the lowest year plus 20% of the increase
- and others still will take your latest year without looking at the previous at all
Bad news though, if the current year isn’t so crash hot- we are probably going to have to use your worst numbers
Heavy on paper deductions? Say, a lot of depreciation or interest deductions?
- Most allow us to “add back” these losses to the income – great!
- But some don’t,
- or do but only if we add in all of the businesses liabilities (company structure)
- or do but only if the depreciation isn’t for an item you use directly to generate your income – like earthmoving equipment or a truck
- and some put a limit on it – say $20,000 in depreciation only.
Getting confused yet?
Got an interesting structure? Company or a trust setup – who doesn’t?
- Again there are lenders who will allow you to add in your portion of the company profits, depreciation and interest addbacks
- And others who won’t. Well that was simple.
- Some will allow you to ignore company liabilities entirely
- and others just won’t!
Can you see why you have almost no chance of being approved if you walk in the door of the branch up the road – which one would you choose?
Would seem to simple to put labels next to each point with the lender in question – right? Trouble is self employed policy changes so rapidly – just last week there was a major change with one of the biggest lenders, keeping up with this is a full time job (mine).
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