It takes courage, determination and discipline to become a successful entrepreneur or to go the extra mile to increase your income in the gig economy. These values should count for a lot when seeking funding for your property and it should not count against the entrepreneur. However, this has not been the case for so many entrepreneurs when they want to buy property and the simple reason for this is a lack of clarity and understanding of what banks look for.
As the employee-employer dynamics in the place of work continue to evolve rapidly away from what is traditionally understood to be corporate employment into flexi employment, banks that provide home loans for property purchases will not evolve as quickly. The main reason for this is the bank’s most proven risk management practice remains to seek consistency in the income and expenses patterns of the customer they lend money to.
Contrary to popular belief, banks are not as concerned about your employment status as much as they are more interested in advancing credit to quality customers that match the profile of acceptable lending risk. The key principle of acceptable lending risk is driven by how well the consumer has been able to make consistent repayment on past credit and the consistency of their income over a period of time.
In stating the obvious, when you are an entrepreneur, the period it takes for you to be proven as successful takes a couple of years in which your business grows and gains consistency in its earnings. By comparison, the banks also want to see a period in which to assess the consistency in your income over time.
It is important to understand this principle because it gives entrepreneurs and citizens who earn extra income from the gig economy a key insight into how to make themselves more attractive to the banks they need money from.
Ironically, banks lend more credit (rand for rand) to entrepreneurs than they do to employed individuals. For example, the highest home loan granted via MortgageMarket.co.za from a bank was more than R10m and the lowest interest rate in the past 12 months was 5.4% and both there granted to an entrepreneur and not an individual employed in a corporate.
So the question is how do entrepreneurs go about making themselves more favourable to banks?
Here are three simple tips to increase your chances of getting a home loan for your property as an entrepreneur.
First, make sure your credit record is in good standing by paying all your existing creditors consistently and in full. Regardless of if you are self-employed or work for a corporate, this is the number one requirement a bank will assess.
Second, keep a monthly management account of your business income and expenses. At the end of each 12-month cycle in your business, draft year-end financials. The banks will require two years of financial statements.
Lastly, use a home loan marketplace such as MortgageMarket.co.za that gives you access to six banks including your primary bank and will assist you with applying to multiple lenders with a single online application that increases your chances of getting a home loan six times.
Being an entrepreneur should be encouraged, celebrated and should not be a reason to be at a disadvantage when it comes to getting a home loan from a bank. The trick is to understand how to formally reflect to the banks the consistency and discipline you already have, to enable them to fund your property goals.
• Akinnusi is the co-founder and CEO of MortgageMarket.co.za
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