Being self-employed has a lot of advantages. As your own boss, you have much more control over the running of the organisation, your hours and who you work with. The main downside is that you may find difficulty when trying to secure a mortgage or get accepted for a loan.
From a lender’s perspective, they see self-employed individuals as being higher risk and lacking the security of a stable employment. This can be despite having a solid and stable income. But with 3.3 million self-employed people in the UK, making up 5 per cent of the UK’s population, there are some options available to access finance, as discussed below.
Get a few years of accounts under your belt
Lenders, both secured and unsecured, give more credibility when you have more years under your belt. For someone who has been self-employed for around a year, they do not have the same credibility as someone with over ten years of accounts and running a successful company.
For a mortgage, it is recommended to have at least three years’ worth of accounts to show that you have built up a regular income and salary, worthy of being able to repay a loan on time.
Invoice factoring is a fast growing business which allows you to release cash from your upcoming invoices. Whilst many people wait 30 to 60 days for an invoice to be paid, you can receive an advance of up to 80 per cent of your invoice total.
This allows you to have access to finance and then in a position to repay the loan and interest once your invoices have been cleared. With interest rates at around 2 per cent to 5 per cent per month, it acts as effective way to obtain finance. The main part of the application involves the lender confirming the invoice value with your clients.
While getting a loan as self-employed might be tough, you may find that you are in a better position if you have a valuable asset that you can use as security. The most popular form of security is of course, a property, and others include vehicles, jewellery and art.
The growth of specialist finance which includes development, bridging and mezzanine finance is commonly used for properties and businesses as a way to raise funds, without needing credit checks or full-time employment. In particular, bridging finance is commonly used by individual property investors and developers who are looking for to secure finance against their property and repay the loan once they have increased its value ie by renovating or extending it.
Use a broker
When all else fails, you can use a mortgage broker to help you secure the home of your dreams. Brokers are more likely to have access to different loan providers and also have experience with a variety of clients, both employed and self-employed. With thousands of mortgage brokers in the UK, you are in a good position to get help and find the loan you need. However, you may have to incur a broker fee or sometimes this is included by the lender’s terms.
Advice for sale traders: If you are self employed and looking for help and guidance on running your business be sure to check out our sister website’s dedicated section on sole trading here.