As a business owner (or being self employed) you may (or may not) realise, there are quite a few different options out there and structuring that can be done to have a mortgage that specifically caters to your needs. Going through this process can be quite involved and ultimately the goal of the lender is to determine your affordability of a loan not just for the present but into the future. With a PAYE borrower this is quite easy as banks can simply project the salary of the borrower to pay the debt.
As a business owner, your circumstances are evolving and lenders normally require at least 2 years of returns lodged with the Australian Taxation Office. However, it should be noted that different institutions have different methods to determine your ability to service a loan. Below are some considerations when looking to apply for a loan as a business owner:
- Be sure to look at all alternate lending institutions and not simply the bank that looks after your everyday and business banking.
- Have your last two years of financial assessments, income tax returns and notice of assessments ready
- Be sure to check that you are considered to be self employed. If you are a contractor or sub-contractor you may be eligible as an employee.
- Be across, and be sure to list your business ‘add backs’. Add backs relate to items deducted as expenses that are added back to net income (examples include a car allowance, phone allowance or depreciation). Feel free to speak with us further about ‘add backs’ and we will be sure to help better inform you.
- Understand your exact loan purpose. Being self employed you have more of an opportunity to claim some of your interest as a tax deduction and understanding this at the beginning can help you save in the long term.
- Try and make your business cash flow work for you. For example if you can park your taxation owed to the ATO in an offset account, then you can overall reduce the amount of interest paid on your loan.
- With a business loan, the bank will probably charge you a higher rate of interest and require annual reviews. Some lenders will lend for business purposes at home loan rates, however, this will only occur if you use a residential property as security
- Think about the next 5 years and don’t be stuck on the present as assessing how your financial needs are likely to change might save you from having to re-structure your home loan regularly.
- Be sure to continue to protect your credit history and credit rating as this will affect your current and future loan options.
- Monitor your cash flow and make sure your home loan is structured to provide maximum flexibility
At Achieve we can help you work through all of the various scenarios that you may face as a business owner. We understand what it is to be a business owner and our business is structured to best meet your needs.