In what I’d refer to as ‘normal’ times, whatever that might be, lending institutions would assess self employed borrowers capacity to meet a loan, based on their trading position and financial performance from the most recently completed financial year. So at this point that would be 30th June 2019. However with the impact of COVID on many industries with far reaching tentacles, I am noting some policy changes in this lending space. These changes are in many ways not unexpected because lenders want to ensure that a business’ viability is ongoing and that any additional borrowings would not be placing the clients in a position of ‘hardship’. Extra debt isn’t always the answer. Here are two examples of these policy changes effecting self employed borrowers that I have seen implemented from May 2020 :-
Any profit distribution from the company , partnership etc has been ‘shaded’ in assessment of loan servicing to a lower percentage of say 60% or 70% of the actual taxable figure. That is a ‘stress’ check as it were.
Certain lenders are now requesting interim financial statements, current business trading account bank statements and BAS. In addition a letter from the external accountant or taxation planner is required. This is obviously to ascertain the effect of any downturn by COVID on the business.
As I said above these sorts of measures are expected but the requirements and policy changes vary greatly from one institution to the next. These changes impact lending for both residential and business purposes, and really just highlight the need for self employed borrowers to utilise the professional services of a broker who is able to research the lending options with access to the important credit policy information. That simply put means the difference between a successful outcome or otherwise.
Contact Michael on 6583 2211 for further information.