We are experts in assisting self employed business owners with home lending. Here’s how we help:
The bank would ideally like you to have run your business for 2 years, with 2 years ABN and GST registration.
There are exceptions to this where you are very experienced in your industry and can demonstrate that your income will grow or remain consistent upon starting your own business.
Unlike a salary, the income for self employed clients is harder to predict and varies from year to year.
Most banks will aim to understand the consistency of this income by requesting your completed financials for the last 2 years. Completed financials means those which have been lodged with the ATO and your Notice of Assessment has been issued. Some lenders will only require or use your latest year’s income to determine loan servicing.
As this income is always historical, most banks have a time frame for which they will require your previous year’s financial statements to be finalised.This is usually January, February or March or every year latest year’s financials must be finalised.
The income verification documents for a self employment documents are different to that of a PAYG client. They mainly are your:
The remaining documents will be the same as any other borrower, whether for an owner occupied property or investment.
No, it only takes and adviser that is experienced and comfortable with working with financial statements. If your broker has worked with many self employed applicants and understands how to present your scenario then there should be no issues.
The principles of determining borrowing capacity are the same as for any type of client.
It is a case of (1) understanding and determining your income; and (2) subtracting your living expenses and the repayments on your liabilities to derive (3) your net income that can be used to repay a loan. The hard work in a self employed scenario goes into understanding your income and picking the bank that will view it the most favourably.
There are several ways that a bank can treat your income.
The income calculation methodology that applies will depend on the bank that you select.
Yes, we understand some clients earn more than they draw from their company as an income. Many successful owners choose to keep ‘retained earnings’ in their companies to continue reinvesting into the business or to minimise the tax they must pay.
Where you 100% own your business or have a substantial shareholding, some banks will let you add the profits of the company to your own salary or directors fees from the company.
Where you have a minor shareholding, or the banks policies disallow, there are other lenders that will only accept for servicing the income you draw from the company and that ends up in your personal tax return.
Yes, loans within your business can reduce your borrowing capacity. Again, this depends on the bank that you pick. For some lenders the repayments on your business loans must be factored into your serviceability. Other lenders will ignore.
No, we have expertise in interpreting income from all types of entities. The skill here is understanding the flow of income to understand your true borrowing capacity.
Examples of a complex loan scenario include:
When there is a split shareholding, some lenders will apportion your share of the companies profits to your servicing, in addition to any PAYG income drawn.
Other lenders will only accept for servicing what you actually draw from the company in the form of salary, directors fees or dividends. This is lender dependent, and we will advise of the best option in our assessment of your scenario.
No, for normal full-doc lending, there is no difference in interest rate if you are approved for your loan. The rates will be the same as if you were a PAYG salaried employee.
While the work is different to understand your income, and more experienced credit officers may assess your file, once your loan is submitted the loan process itself is the same as if you were a salaried employee.
If your financials are not up to date at the time of application, you will need to urgently advise your accountant to complete them in order to achieve a formal loan approval. If you are unable to finalise your latest years financials, you may have to consider a specialist loan.