Self-employed and growing faster than your company financials reflect?
Is your self-employed company really beginning to take off? Read on to find out how you may be able to obtain the loan you need and sooner than you think!
As mentioned in our earlier blog post, in recent times there have been a suite of changes to make life easier for those who are self-employed running their own business and are seeking a loan to enter the property market. In this post, we will be discussing the second policy change mentioned, and how it can significantly increase your lending capacity as well as shift forward the timeline to qualify for a loan!
What’s the deal?
In normal circumstances, if you are self-employed, lenders will assess your borrowing capacity based on a full 2 years of company financials. Meaning, if your previous financial year results were significantly less than your current year’s performance, the average of the two can really drag your maximum lending capacity down.
This is a common scenario faced by business owners. For instance, when an unexpected bad year crops up, or if you are just a new business really starting to grow.
However, with the recent changes in mind, we now have multiple prime lenders on our books who will service your borrowing capacity based on just 1 year of company financials. This is a major win! Especially if your someone who falls into the circumstances I outlined above.
Further to this, we have a lender available to us that will even excludes any company debts when considering your application!
Read on to learn more and see how this could help you.
Let’s see how choosing the right lender and the right policy can change outcomes through use of an example. We will use Rosie, our imaginary applicant, who is very typical of clients we regularly help.
Rosie runs her own business as a florist. She has an eye on a house she would like to make an offer on, with the property listed at $450,000. Having saved a 15% deposit, she will still be required to pay lenders mortgage insurance (LMI) falling just short of the requisite 20%.
Rosie banks with “Bank A”.
Her business is finding its feet and has really taken off in the last year after posting a net loss the previous year:
Current financial year performance: +$15,000 Profit.
Previous financial year performance: -$10,000 Loss.
Has some company debts including:
2 car loans with monthly repayments of $2,000 in total.
A small credit card with a $10,000 limit.
Withdraws an annual salary of $70,000.
The table below shows what a variety of lenders would be able to offer Rosie based on their current policies available to those who are self-employed.
As you can see, there is a huge variation in the maximum borrowing capacity being offered across these lenders. If Rosie had only gone to her existing bank, like many people mistakenly do, she would have missed out on the possibility of making that offer on her potential new home.
Things To Keep In Mind
Note this is a simplified example for demonstration purposes. There are certain terms and conditions that must also be met to take advantage of the lending policies mentioned.
However, it serves the purpose of demonstrating why your mortgage broker is your best friend when searching for the right loan! Call us today so we can help you maximise your lending potential.