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Self-employed loans

Risky business - how to get a loan if you’re self-employed
Over the years I have been contacted by many self-employed clients who have struggled to get a bank loan. As we all know, banks are risk adverse, and prefer to lend money to those who have a salary or wage. After all, income on a regular basis demonstrates that you have the capability to pay back the loan.

Unfortunately, things aren’t that clear cut when it comes self-employed applicants – income can be varied, inconsistent and sometimes hard to prove. The average bank will see this as risk, and banks really do not like risk.

You are not a-loan
I can offer help and advice in negotiating a bank loan for you if you’re self-employed. In order to progress with a loan, ideally you need to be able to show at least two years of trading history. However, if you have proven experience in your line of work, or you have a larger deposit to put towards your purchase, you can often provide the bank with just one year’s history.

Another usefuI source of assistance is your accountant. The best time to have a catch up with them is when they are preparing your tax returns. Discuss your plans to borrow, and they can prepare your financial reports taking into account your borrowing needs.

One common issue with self-employed borrowers is that they write off every expense possible, reducing net profit and personal income; two key factors when approaching the bank for finance. A good accountant will be able to advise you on what you should and shouldn’t write off.

Get the loan low down
If you can’t prove your income, there are alternative lending options. There are several reputable non-bank lenders in the market who offer what’s known as a low-doc loan. This basically means that with a little bit of supporting information – for example, six months bank statements, GST returns or cashflow forecasts – you can still borrow money.

This is generally a short-term solution, and once you can prove your income is stable, then we can look to re-finance you back to a mainstream bank. As an indication, non-bank lenders generally charge around 7% to 8% plus fees. Although this is higher than a bank’s interest rates, it might just help you out of a tricky situation, as non-bank lenders look at the borrower and their circumstances, not just the numbers.

If you’re self-employed and not sure about your borrowing options, please contact me for a free, no obligation chat. Call me on 027 411 9255 or email david@dlm.nz