Self Employed and looking to get finance? Have a read.
We are a nation full of self-employed people. MBIE records NZ as having 530,000 Small to Medium Enterprises. These are businesses that have 20 or less employees. These businesses cover an extensive range of trades, professions, manufacturing and services. If you are one of the special people that own your own business, you’ll know that it can be exciting and scary being in business.
There are lots of reasons that you may have gone into business, such as
Flexibility with your time to be able to work when you want
Profits from your hard work are yours
You have control over what, how and when you do your work
Ability to claim home office expenses and other such tax advantages
Great!! That all sounds really good, right? Until you go to get finance. When you go to get finance Lenders LOVE Employees. Employees have a regular minimum income, based on their Employment Agreement.
Let’s look at the difference in what is required by the Lender when you apply for finance.
If you are an Employee you will need to evidence your income through
- Your last 3 payslips
- Confirmation that you are not in a probation period
- Statement to say no known adverse changes to your income are planned and this includes going on maternity / paternity leave
For Self Employed people take drawings from the business, no matter how regular, the lenders need to see:
- 2 years financial statements -finalised and not draft accounts (so you will need to get an accountant to do your accounts well in advance of when you need to get finance)
- Information on Guarantees provided
- They may also require a forward cashflow plan certified by your accountant
If you have a split of wages (where you pay PAYE) and shareholder salary / drawings, the lenders will seek to get confirmation from your financial statements. Many lenders will take the average of the 2 years income, so if you have a bad year this will affect your ability to borrow as it will reduce your servicing capacity.
It is not all bad news though if you’re Self Employed, as there are other options.
Alternate lenders or second tier lenders have products that are suited to self employed people, especially if you have been in business for less than 2 years or your income has increased as your business has improved.
For the privilege of access to the funds you may pay a slightly higher interest rate and as I have said many times in the past “it’s not just about the interest rate!”
The rate is not important if it is affordable …and the loan structure is often more important. That’s where we can help you to make sure you are getting the best from your lender.
It doesn’t matter if you are in business with other people – you will still need to prove that you’re a safe bet for the lender.