Breaking the 'self-employed' stigma

Bluestone explains the opportunities this segment offers brokers

Self-employed borrowers come from all walks of life and have a wide variety of needs and objectives – family homes, business properties and investment opportunities among them.

All these require finance, but brokers have often shied away from working directly with such borrowers. Concerns about complexity and the low odds of approval are often cited. Yet self-employed borrowers can struggle to find appropriate loan solutions, and brokers are perfectly placed to assist them in this struggle.

For Royden D’Vaz, head of sales and marketing at Bluestone, it’s a no-brainer. Small business owners, he notes, are often time-poor and looking for quick, convenient solutions. Brokers can serve as an invaluable resource, allowing them to better focus on where their skills lie – their business.

“Brokers generally have a better understanding of the market and the unique value proposition of each lender on their panel,” says D’Vaz. “They’ll be better able to recommend products that are suitable for the borrower’s specific goals.”

How can brokers help?

The self-employed market offers several opportunities for brokers. Research by the RBA suggests that the market is underserved and it can be difficult for these borrowers to find appropriate loan solutions on their own, D’Vaz says.

“The self-employed borrower segment is a great first step to a more diversified broker business,” he says. “From a broker perspective, most will be very similar to vanilla home loan applications. However, the borrower is more likely to require support because of the increased scrutiny of income.”

“The self-employed borrower segment is a great first step to a more diversified broker business” Royden D’Vaz, Bluestone

Additionally, self-employed borrowers are more likely to require ongoing financial support than their PAYG counterparts, says D’Vaz.

“Their needs are often more diverse, and a broker’s service tends to be required more frequently,” he says.

“For example, apart from purchasing their home or investment property, many self-employed Bluestone borrowers use our solutions to consolidate business and personal debts or set up lines of credit for cash flow support.”

Additionally, others choose to cash out equity to grow their businesses or meet payment obligations to suppliers or the ATO.

Brokers are the best equipped to provide this kind of sophisticated support, D’Vaz says.

Self-employed versus PAYG

Self-employed borrowers cover a broad spectrum of income levels and industries, and that means brokers need to be prepared before diving head first into a new market, D’Vaz says.

“This can mean their income is more variable than that of their PAYG counterparts. That’s part of the reason why they often require more substantial documentation.”

With that said, home loan applications for self-employed borrowers are not significantly different to those for PAYG borrowers. As in any loan scenario, the borrower will need to demonstrate their income and expenses, and prove they are able to service the loan they are applying for.

“The main difference lies in the type of documentation self-employed borrowers have to provide to prove their income,” says D’Vaz.

“While PAYG borrowers usually only need to provide their two most recent payslips and personal bank records, self-employed borrowers have to provide more extensive documentation to access the same types of loans.”

For self-employed loans to be considered fully documented, borrowers usually need to provide two years’ worth of tax returns, a notice of assessment from the ATO, and at times their business bank records showing cash flow.

“This can present difficulties, depending on when they’re applying for their loan,” says D’Vaz. “Borrowers might not yet have completed their latest returns, or may have been trading for less than 24 months.”

In other cases, tax records don’t provide an accurate representation of the business’s position. For example, trading conditions can vary from year to year.

Business growth and upscaling – or, alternatively, shrinkage – can lead to significant variance, which loan providers may find concerning.

Still, this doesn’t mean the borrower won’t be able to secure a loan, D’Vaz says. “In these cases, many lenders offer solutions that accept alternative documentation to prove income, also known as alt-doc loans.

These loans allow self-employed borrowers to use different types of records to prove income, such as BAS, business bank records, or a statement from their accountant.” Once the relevant information is secured, the subsequent application and approval process for self-employed loans is very similar to the PAYG loan process.

There is no reason they should be any more difficult to complete.

“In Bluestone’s case, our BDMs are always ready to assist a broker and answer any questions that come up along the way,” D’Vaz says. “We also offer a variety of checklists to show what type of documentation brokers and borrowers need to provide for each type of loan application.”