Are banks now embracing self-employed borrowers

Financial Planning, Home buying & selling, Melbourne
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Typically, the steps to securing a loan including provide a few pay slips that will serve to demonstrate your reliable, consistent income. Most of the time one or two will do, maybe three at most. And some documents that establish how long you’ve been employed. Relatively speaking, it’s a straightforward process. 

Unless you’re self-employed of course – then things are decidedly more stringent in proving your reliable, consistent income. A different set of rules apply to the self-employed compared to those who are employed. The self-employed borrowers need to provide up to two years of documentation about income levels and debt levels. And the bar is generally higher.

A surface-level analysis would suggest this is reasonable – there’s risk in running a small business and bankers, the cautious beasts that they are, require additional assurances before they lend.

However, while it’s true that there are added risks attached to small businesses – supply chain issues, customer service issues, production process issues – is the level of risk of failure so significantly higher that the chances of securing a home loan are so much lower?

First home buyer New

Employee stability vs small business stability

In 2019, the ABC reported that 187,000 Australians were made redundant in 2017, a figure that jumped to 272,500 by 2019 – a 45 per cent increase.

Employee stability is not the gold-standard it once was. “Career counsellors are warning that anxiety resulting from widespread job insecurity is reaching alarming levels…” ABC business reporter David Taylor wrote.

Looking at an industry such as the media – News Corp Australia made thousands of journalists redundant in the years between 2010 to 2015, catching many homeowners and mortgage customers by surprise. That’s one employer. Since then, shrinking of the media sector in Australia is well-documented and thousands upon thousands of previously ‘stable’ jobs have disappeared.

Could it be that the banks’ position on employee stability vs small business stability is outdated?

Untapped markets

Self-employed people make up more than 18 per cent of the national workforce of 11 million – that’s almost 2 million potential borrowers who could be borrowing from the banks.

And there are almost entire sectors that are dominated by self-employed people – such as the financial services, house building, farming and photography industries are self-employed, according to research firm IBISWorld.

Game changer

It seems some banks are coming around to the view that there are untapped markets that could provide new growth opportunities for lenders, and so have softened their position when assessing self-employed customers.

“Major lenders, including CBA and ANZ, have reduced the period of business records and profits required to qualify for a loan from two years to between six and 12 months, according to analysis by Canstar,” reported the AFR recently.

This could be the game changer that the self-employed sector needs. CBA now seeks six months of records that demonstrate the self-employee has been receiving a consistent wage as part of the assessment process. A letter from the business accountant that supports the sustainability forecast of the business may also be required.

For many small business owners, a great accountant has helped reduce taxable income through business write-downs and deductibles. This could be problematic when presenting to a lender for a home loan. It may require a change in strategy for six months – where income levels are highlighted rather than minimised. A discussion for your accountant, for sure!

About time

While some small businesses, usually hospitality focused, will be struggling because of the impact of the pandemic, there are others that are thriving. Some of these include gig economy self-employed people, as well as those with online retail businesses and those in medical fields (selling face masks, for example!). These businesses are thriving and likely to continue to do so. It’s about time banks softened their position to allow these people to borrow.

There are more than 2 million small businesses in Australia and the small business community shoulders a significant economic load in this country. According to statistics from the Australian Small Business and Family Enterprise Ombudsman, small businesses account for 33 per cent of Australia’s GDP, employ more than 40 per cent of Australia’s workforce and pay around 12 per cent of total company tax revenue. And women are increasingly finding their way in this area –31 per cent of small business owners were women in 1991, but this rose to 34 per cent by 2015.

It seems somewhat unfair (as a small business owner myself) that this sector faces a higher bar and a higher burden of proof to access a home loan. 

So, it is with a sense of “about time!” that we celebrate this move by two of the big banks to welcome more small business owners to the table. Hopefully more will follow. It should be noted that most still require two years of financial statements, a profit and loss report and BAS statement that indicates all tax obligations, including GST. 

So, it may be advisable talking to a broker (who is probably a small business owner themselves!) to see which banks are more small-business friendly and then bring in a discussion with your accountant to talk about strategy.


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The information provided in this article is general in nature and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information you should consider the appropriateness of the information with regard to your objectives, financial situation and needs.

Andrew Mirams

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