One obvious issue that has unfolded since the outbreak of Covid is the long term sustainability of employment and business post Government support. Prior to Covid there were already signs emerging in the economy of pressures being placed on businesses across broad industry sectors. Pressures being placed by changing patterns of consumption, but also by available household disposable income. Rising rates of unemployment and underemployment exacerbated this . Now that is in itself a whole discussion point and I only made these opening comments to explain why lenders have recently placed additional information requirements around this area of employment and sustainability.
Lenders now want comments and additional information in loan applications covering such things as:-
Why a borrower’s employment and industry has not or will not, be impacted by the pandemic?
What reliance will there be on industry allowances & overtime in assessing a person’s ability to service a loan?
Is the borrower receiving job keeper or job seeker income?
Variances of greater than 10% in sales volumes for self-employed applicants.
Employee pay slips provided must be the most recent in their pay cycle .
For self-employed applicants, 2019 financial statements and tax returns are no longer sufficient for lenders to use as a base for loan servicing assessment. At a minimum Business Activity Statements (BAS) for the period up to 30th June 2020, and more likely the completed tax returns and financials for that period will be required.
I think you can see why lenders would ask for more current information because the impact of the pandemic during the period from say February 2020 to now will undoubtedly see some business’ operate in survival mode and further cutback of labour costs would be expected. Of course the impact in many regional areas for now, is perhaps not so stark but lenders take a broad brush stroke to credit risk assessment.
The important thing for everyone to note is, if you are applying for finance be prepared, making sure all your information is as up to date as possible.
Remember COMPASS Lending & Finance is here to assist you.
Contact Michael on 02 6583 2211.