Getting a home loan as a business owner.

Why is it so difficult to get a home loan as a business owner?

This is a common perspective for lots of self-employed clients when we speak to them for the first time. Either they’ve seen a broker or two before us or they’ve been turned away from a bank. The main reason for this is that no two businesses are the same, and so a square hole, square peg approach to a self-employed home loan assessment rarely works. Due to NCCP (National Consumer Credit Protection Act) guidelines and under the watchful eyes of APRA (Australian Prudential Regulation Authority), banks must standardise their approach to assessing self-employed income (well all forms of income for that matter) so that all self-employed individuals can be treated the same.

You can see where I’m going here right? All businesses uniquely different, and assessment policies are standardised internally, but range in difference between separate banks. This means that we might see two completely different business owners making exactly the same net profit, and with the same liabilities, applying for the same home loan, but because their business and cashflow structures are different their borrowing capacities can be vastly different from one bank to the next.

Let me give you an example.

Joe owns a fruit shop and has been trading for 5 years. In the most recent year his business made a profit of $30,000 and he paid himself a wage of $70,000. In the previous year he had to close for 6 months due to a flood and his business made a loss of $20,000 while he paid himself only $50,000.

Sam is an electrician and sole trader and has been working for only 18 months. His most recent tax return shows taxable income of $100,000

‘Bank A’ accepts a minimum of 18 months trading and will assess all combined income from only the most recent year.

‘Bank B’ requires a minimum of 24 months trading and will assess using only income paid to individuals while ignoring any company profit and averaging over 2 years.

Under ‘Bank A’s policy, Both Joe and Sam’s assessable incomes would be $100,000.

Under ‘Bank B’s policy, Joe’s assessable income would be $60,000, and Sam’s income would not be accepted at all due to having traded for only 18 months.

And so the key here is knowing which banks will have the best policy to suit your business structure, cashflow structures, duration of employment, liabilities etc to maximise your borrowing power.

So where do you find this information?

Well banks don’t make this information available to the general public, so that makes things tough, but your broker will have access to all of this, and a self-employed specialist or commercial broker is likely to have access to even more goodies.

The best thing about a commercial assessment is that these assessors can often view your income from a ‘common sense approach’ rather than a ‘standardised approach’, using various points of income verification that range a little outside of standard bank policies. But you’ll need an experienced commercial broker or self-employed specialist broker to know which banks to approach in your particular set of circumstances. If you’re a business owner and you’re wondering what your lending options might be, then get in touch with us today. This stuff is our Jam, and I can’t tell a lie, we love saying ‘yes’, where others have told our clients ‘no’.

As always, we’re here to help.

Luke Meisenhelter

With over 14 years in the finance industry Luke has helped countless clients achieve their finance goals. As the Managing director and founder of Loanright Financial services Luke now manages a team of experienced mortgage brokers with a combined total of more than 60 years finance experience in residential and commercial lending as well as business and asset finance. As a leader the finance industry Luke has become an innovator in the game, mentoring and coaching other industry professionals and pushing the limits on process driven workflow structures, systems, and accountabilities, aimed at providing the best possible financial outcomes for all clients in the shortest possible time frames. Throughout his years in the finance industry, Luke has become increasingly frustrated with the quality of information available to consumers in the property and finance market, most of which is biased and designed to capture leads by creating fear and offering a magic solution. It’s Luke’s goal to share his knowledge and provide free, non-biased, quality sources of information on finance and financial concepts to as many Australians as possible.