Self Employed Loans
You are considered to be self employed if you are a sole trader/proprietor running a business or profession, a partner in a business, a consultant or a contractor (independent).
Is it possible?
It is a common misconception that being self employed means having a hard, if not impossible, time finding a loan or a mortgage. But nowadays, it’s easier than you might think.
The sheer competitiveness of today’s financial marketplace means the range of institutions offering loans to people who previously wouldn’t have qualified is increasing all the time. And since being self employed is no longer the liability it was once deemed to be and many more people are now working for themselves (almost 1 in 12 British workers), it doesn’t necessarily mean paying sky high interest rates. In many situations, the self employed may get similar interest rates to their employed counterparts, although rates are obviously higher if the applicant has CCJs, payment defaults or any other adverse credit history.
Secured Loan
As long as your house is worth more than the mortgage you have on it, you can borrow against the equity- a secured loan. Secured loans are ideal for people who want to borrow a little more and/or pay the loan back over a longer period- up to 25 years.
Many lenders will consider the self employed and other people traditionally in a high ‘lending risk’ category for secured loans due to the added security. Be aware though, that inflating your self employed income figures on a loan form could not only lead to criminal prosecution, but to possibly losing your home if you are unable to keep up repayments. Interest rates depend on whether you choose to certify your income with proof or self certification among other factors. See ‘proof of income’ below.
Unsecured Loan
The likelihood of getting a self employed unsecured loan and the interest rate available will be linked to whether you have a certified income or not, your disposable income and of course your credit history. With the massive array of lenders out there now, there is one for just about everybody. So even if you are self employed with no proof on income, there is more than likely someone who can accommodate your needs.
Be prepared to pay an interest rate reflecting how much of a ‘risk’ you are as a borrower though. Someone who only receives seasonal pay and is self certified would likely be offered a higher interest rate than someone with good all year round income and has their income certified by their accountant.
Proof of Income
Certified income is at least two, more often three, years of business accounts that have been signed off by an accountant or auditor. The lender then draws an average and, for accounts that are in very good order, interest rates can be offered which are the same as for those who are salaried. However, a strategy of accounting that shows minimal profit for tax purposes could possibly be a disadvantage when applying for a large loan or mortgage. In these cases, self certification may be beneficial.
Self certification means you can sign a statement of income without having to provide documentation such as wage slips. Not only useful for the self employed, but also seasonal workers, contract workers, unsalaried company directors, people with more than one source of income or anyone with irregular or supplementary pay such as commission based salespeople. You may pay a slightly higher interest rate for this sort of loan or mortgage but, as a plus, they tend to be tailored to the individual. Some may even offer payment holidays when work dries up or allow overpayment without penalty when cash flow is good.
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