Working for yourself can provide a lot of freedom – however it can also bring about frustration when it comes time to apply for a loan because it can sometimes be hard to prove your income.
There are more than 300,000 workers in New Zealand that classify themselves as self-employed, which represents about 10 per cent of the total workforce.
Unfortunately for many of these self-employed workers, an application for finance could result in an unexpected “sorry, but we can’t help you”.
Mike Pero Mortgages has a network of mortgage brokers across the country that specialise in helping customers reach their financial goals. To help you better understand why self-employed borrowers are treated differently, and what your options are, we’ve answered some key questions below.
Why do self-employed borrowers struggle to get finance?
Many self-employed workers earn an irregular income, especially when they first start out, and because of this, traditional lenders look at them in a different way to those that receive pay-as-you-earn (PAYE) income.
Unlike those that earn PAYE income, lenders will generally ask to see at least two years' worth of balance sheets, annual accounts or tax returns in order to process a self-employed worker’s application.
For some this may be easy to produce, however any self-employed worker that has only just started, or those that haven’t had time to do their tax returns may struggle.
What should I do if I’m self-employed and need finance?
Thankfully those self-employed borrowers who don’t meet the strict criteria of traditional lenders do have options – if they know where to look. There are lenders in New Zealand that offer ‘low-doc’ loans, which accept alternative forms of documentation, such as six months’ worth of bank statements, to verify the applicant’s income.
Many low-doc lenders will also consider other elements of the application, such as the strength of the underlying asset, rental income of an investment property, or other forms of income such as investments/share dividends to help them assess the loan.
Who do I talk to if I need a low-doc loan?
If you’re self-employed and think you’ll need a low-doc loan, talk to a Mike Pero Adviser. Mike Pero Advisers know the market well, so they’ll be able to guide you towards a lender that suits your individual needs.
While low-doc loans do require different types of documentation, some of the documents you’ll need to provide can take time to source, so it pays to have everything lined up before the application is submitted. Your adviser will be able to help you with this, so make sure you reach out to one early in the process.