If you’re self-employed, you have a number of advantages over those who have regular employment: you manage your own time, your finances have more potential for growth, and you get to choose what projects to work on, just to name a few. However, your position could also make it difficult for you to take out loans since your income tends to fluctuate. For this reason, it helps to prepare beforehand if you’re planning on taking out a loan in the next few years. Here are some tips to get you started.
1. Keep your debts to a minimum.
While not all forms of debt are bad, especially when used for your business, it could hurt your chances of getting a loan, or at least an attractive one. That is because lenders would typically want to find out if you can still manage an additional debt (e.g. a mortgage or a business loan) on top of your other debts. There is no escaping this fact since most lenders would require you to submit your credit card statements during your application.
To improve your chances of getting a loan, limit your debts to only the ones you need or those that would benefit you. It also helps to pay in cash if you could help it.
2. Show proof of a profitable business.
Aside from credit card statements, lenders will also typically request your Business Activity Statements for the past 12-24 months. Thus, it would be easier for you to secure a loan if you can show lenders that you are running a profitable business since this means you will be able to make the loan repayments.
3. Save up.
If you are taking out a home loan, for example, lenders will require you to make a down payment for a certain portion of the purchase price of the property. It can be quite a hefty sum, so it would help to save up for it early on. One way you can save up for the down payment faster is by depositing your savings to a high-interest savings account.
4. Work with your accountant.
You can choose to have a low taxable income, but it could affect your application since it would tell lenders that you’re not earning enough to take out a loan. On the other hand, a high taxable income would mean that you’d lose much of your money to taxes. But you can strike the balance between the two by working with your accountant. Find that spot where your taxable income is enough to get your loan approved.
5. Do your sums.
You also have to find out on your own if you can afford a certain loan. It would thus help to have a look at your finances. See how much money comes in and out of your business, and determine if there are expenses you can do away with. Removing unnecessary expenses would further open up your finances, so you can, for example, reducing your existing debt, have more money for your down payment, or other means to improve your chances of getting a loan.
Here at Launch Finance, our expert brokers can assist you in planning for, and securing, a loan if you’re self-employed, and make the process as simple and as hassle-free as possible.