Thinking about buying a home (or investment property) as a business owner? You’ve probably already heard it’s “a bit trickier” for you than for 9 to 5-ers. But trickier doesn’t mean impossible, especially when you’ve got the right info and the experts in your corner.
We caught up with Agnes Broadbent, finance broker at Loan Market, to uncover what self-employed borrowers need to know to secure mortgage approval. Spoiler alert: It’s totally doable with the right preparations, a good accountant, and a solid broker.
What makes it harder for business owners to get a mortgage?
According to Agnes, the biggest hurdle is unpredictability. “Business owners often face challenges such as irregular income, complex financial structures, and limited documentation. Lenders may perceive self-employed applicants as higher risk due to income variability or non-traditional pay structures.”
Translation? While your business might be booming, lenders want lots of documented proof that you’re likely to meet repayments. Working with an accountant can help you get your documentation into shape.
How exactly do lenders assess a business owner’s income?
Unlike salaried workers with more predictable incomes, business owners need to show a longer track record. “Lenders typically assess business income over a two-year period,” Agnes says. “They’ll review tax returns, business financials, and profit/loss statements, looking for consistency and growth in business earnings.”
Lenders want to see that you’re not only making money, but doing so reliably.
Okay, so what kind of paperwork are we talking about?
Agnes says the must-haves include:
- Personal and business tax returns (last 2 years).
- Business Activity Statements (BAS).
- Profit & loss statements.
- Business bank statements.
- A letter from your accountant.
Having these ready before you start can make the process smoother. It shows the lender you’re serious and gives them what they typically need to make an assessment.
Can I use my business assets to boost my application?
Yes, but with a caveat. “Business owners can use eligible business assets as collateral, provided they meet the lender’s criteria,” Agnes explains. “Lenders are primarily focused on reducing risk, so if the asset is acceptable, it can strengthen the application by offering additional security.”
But going down this avenue can make things more complex, so be prepared for extra hoops to jump. Agnes states “The lender may require detailed valuations and additional documentation, which can extend approval timeframes.”
A broker can help you figure out if it’s worth the effort for your individual financial situation.
Are there mortgage products made for people like me?
Absolutely! The Australian Bureau of Statistics estimates that there are approximately 2.6 million business owners in Australia, and some of these people are going to be in the market for a mortgage at some stage.
“There are low doc, alt doc, or mid doc loans specifically for self-employed applicants,” says Agnes. Lenders know you don’t have regular PAYG payslips at your disposal to show your income. So these particular loans will request other income verification documents such as your BAS, or a declaration from your accountant.
It’s all about matching the right loan to your situation. That’s where having a good broker can really make a difference.
What if my income isn’t the same every month?
Unlike receiving regular payslips from an employer, most business owners experience peaks and troughs, and lenders understand this. Agnes says “Revenue ups and downs can make it harder for lenders to determine serviceability. Lenders often average income over two years or use the lower year to be conservative.” Not ideal, we know.
But don’t panic, a broker will take the time to understand how your business operates, where the income comes from and track the money trail. “Once we understand that, we present the information in a way that shows the lender a clear picture of the client’s financial strength and good conduct, despite the ups and downs in income throughout the year,” she says.
Also, a broker can clue you in on tips to improve your chances of loan approval… which brings us to our next point.
What can I do to improve my loan approval chances?
Agnes’s top tips include:
- Keep your financials up to date.
- Avoid late payments (even small ones can affect your credit score).
- Separate your business and personal finances.
- Work with a good accountant (we know of one – hint hint).
- Get a broker involved early to guide you through the process and match you with the right lender.
Basically, the clearer your good financial picture is, the better your chances of success.
Does my personal credit score matter if I’m applying as a business?
It depends. Credit scores are important when applying for a loan. It reflects your financial history and how reliable you are at making payments. Agnes reports that if the loan is in your personal name, your personal credit score is crucial. But if it’s a business loan, lenders will usually look at your business credit score.
Agnes explains, “A strong credit score can improve your chances of approval and help secure a better interest rate. While you may still qualify with a poor credit score, the interest rate will likely be much higher.”
Why use a broker instead of just going to my bank?
To put it simply, a broker works for you, not the bank. They’ll work on finding a solution tailored to your specific needs.
Agnes advises “As a broker, I’m legally required to act in your best interest. Whether you’re a business owner or an employee, it’s a huge advantage to have someone working hard to help you reach your financial goals. I have access to a panel of over 60 lenders, which allows me to find the most suitable loan for your specific situation.”
But she doesn’t disappear after approval. “I’ll be with you for the life of the loan, reviewing your interest rate at least once a year to make sure your lender continues to offer you a competitive deal,” she says.
And the best part? Agnes states “Our service is free for you. We’re paid by the lender once your loan is settled, and you won’t pay extra for going through a broker instead of dealing directly with the bank.”
Final thoughts?
If you’re self-employed and thinking of buying property, you’re definitely not out of luck. With the right preparation and the right support, you can absolutely get approved.
Just don’t wait until the last minute. Chat to a broker and your accountant early in your journey to help you get your ducks in a row and find a loan that works for you.
Need help getting mortgage ready as a business owner?
Get in touch with Loan Market Agnes Broadbent to help find the right mortgage for you. And chat with us at ASAP solutions for expert guidance on getting your finances sorted for your big purchase.