Proving your small business income to a lender may be a little more complex than providing pay slips, but it doesn’t mean that you can’t apply for a home loan. There are a few things you can do to make your home loan application process as smooth as possible.
Get your personal finances in shape
A little preparation can go a long way when it comes to saving for a deposit and securing the finance you need. To get started:
- Review your budget to see if you can do more to build regular savings and pay down debt. Saving more now will help you build up a bigger deposit — and a strong history of steady savings and regular debt repayments could make a big difference to your borrowing power when you come to apply for a loan.
- Chase up any outstanding invoices to maximise your income.
- Make sure your personal and business finances are clearly separated. Remember, unless you’re a sole trader and borrow in your own name, money held inside your business structure can't be counted among your assets.
- Pay down personal debts, such as your credit card. If you have unused overdrafts or credit cards, consider cancelling them or reducing your limit. The lower your current borrowings and the better your credit history is, the more likely it is you may be approved for finance.
- Talk to your accountant about anything else you can do to organise your finances and show the strength of your business earnings.
It’s essential that you can demonstrate the ability to manage your accounts and meet existing commitments and loan repayments when they are due. Lenders will check your credit history as part of the application process. You can obtain a free copy of your credit report from credit reporting agencies online. It will also assist your application if you can show a strong history of steady savings.
Know your numbers
Running your own business can mean fluctuations in your income, and lenders will want to see how much you earn, your ability to service debt and whether you have a history of making regular deposits into a savings account.
You’ll need to show that your business has been ticking over steadily to boost your chances of approval – and the more up to date and accurate your records are, the better.
Prepare your documents
Whether you choose to meet your lender in person or start your home loan application online, you’ll be asked to supply a variety of documents.
- Identification: This can include your passport, driver’s licence and birth certificate as well as other forms of non-photographic ID such as utility bills
- Income statements: Bring along your:
- Personal tax returns for the two most recent years along with the most recent ATO Notice of Assessment, or a letter from your accountant confirming the tax returns are final and have been lodged with the ATO;
- Most recent business tax return and business financial statements showing the past two consecutive years' profit and loss information.
If you don't have this information, chat to us about other options and also ask about our simplified verification process if you pay yourself a regular salary.
- Financial information: This can include bank account statements as well as details of personal and or credit loans and debts, existing investments (such as term deposits and shares), and existing assets (such as a car) and regular outgoings
- Other income: If you earn rental income or receive Government payments, provide the relevant documents to show this.
See our full checklist of what to bring.
Gather any extra information you need
Recent income statements don’t always reflect the current state of a changing business. If this is the case, work closely with your lender and accountant as you may have pertinent information about the business that can help give a clearer picture of your income. For example, if you have some one-off equipment expenses, let your lender know that these costs aren’t ongoing.
Apply for conditional pre-approval
By applying for conditional pre-approval, you can go about your property search with confidence, knowing how much you may be able to borrow.
Other things to know
If the majority of your business is done working as contractor or sub-contractor, you may be able to be assessed as an employee with some lenders, making it more likely for you to get approved for a home loan.
If you’ve been running your business for less than a year, lenders may look favourably on your application if you’ve been in the same line of work for some time prior to starting your business and you can provide the required financial statements.
Lenders may also look at your income from your most recent job if your projected earnings for your business are similar to what you previously earned. This is because if you decide to close your business, you may return to working for someone else on a similar salary.
Want to know more?
One of our home loan specialists can answer your questions and help you choose the right loan based on your personal and business situation. And if you’re time-poor, mobile lenders can come to you at the time and place that suits you, even after business hours.