Self Employed and Want a Loan?
12 August 2021
A low doc loan might be right for you
If you are self-employed or own your own business, you will know all about the challenges of keeping your accounts, finances and income flow on track. It is not easy. The last thing you need is a ‘no’ on your loan application because of the paperwork.
The good news is there are alternatives. Here are four steps that anyone who is self-employed can take to help get a loan sorted.
1. Sort out your paperwork
When lenders are looking at a loan application, they are usually looking for a regular level of income that shows them you can make the proposed repayments. Start by showing paperwork that tells them you have been self-employed for an ongoing amount of time and that you do earn a regular amount each month. Being able to demonstrate these things to them will help build your case.
There maybe occasions when it is a challenge to provide all the paperwork you need to document your income. To assist you in these situations, some lenders have provide an alternative process - it is called alternative documentation (Low Doc for short). It is specially designed to meet the needs of self-employed or small business owners who cannot provide the income documentation (ie. full year financials or tax returns) required by traditional lenders, but can still provide valid information with different types of paperwork.
Some of the things these lenders look for include:
Has your business been ABN registered for at least 6 months?
Has your business been GST registered for at least 6 months?
Business Activity Statements (BAS)
Business Bank Account Statements
An Accountants Letter
2. Be smart with your cash flow: Keep things on track
Using financial planner software to manage cash flow can be really good for people who are self-employed.
Paying off any outstanding debts such as credit cards or personal loans or changing those debts from your personal names into the business names (if cash flow allows for it) will positively impact your position and potentially your credit score. This may allow you to qualify for a higher loan amount with some lenders as well as reducing the amount of supporting documents needed to verify business debts.
3. Be upfront with your Broker: Trust their experience
When talking with your broker, it is really important to be upfront about what’s been going on in your business. This is particularly important if there are any large variations up or down in the taxable income shown on your annual financial statements from one year to the next. My team and I have experience with a range of borrowers who are self-employed and are familiar with evaluating the particular cash flows of small businesses and large enterprises.
This will allow my team and me to know upfront which lenders to rule out and which lenders are better suited for your situation.
4. Tackle the taxable-income dilemma: Get good help
One of the biggest challenges self-employed people and small business owners face is their taxable income. The thing to think about when you address this question for your business is how your financial statements today will impact your borrowing options in the future. Talking to a financial adviser or tax professional about your goals (like buying a house or a significant new business asset) when you work out your taxable income is an important step as it can help the accountant manage your business accordingly to your goals.
These are some ideas to help your loan application planning. There are many options for self-employed people who are looking to get a loan but have not been successful with the banks.
If you would like more information, talk to us today about how we may be able to help with a lender that can help if the major banks have said ‘no’ to your loan application.
We can assist your business ring 0410 533 680 or contact me at.
carla.r@quantumbusiness.com.au