Jumping loan hurdles for the self-employed

By Wangeci Kanyeki

Life can be very tough for the self-employed, especially when it comes getting a mortgage. The experience can be a complicated barrier-filled task as the self-employed are categorised as high risk, and banks are more cautious when lending to this category.

When you approach a lender, they will do a pre-assessment analysis of income to ensure you can qualify.

Improve your chances

There are a few things you can do to improve your chances of getting a loan when you are self-employed entrepreneurs running a small business or freelance professionals.

Ensure your source of income or business is registered, whether it is a sole proprietor, partnership or a limited company.  You will also need to prove that you have enough regular income to be able to take up the financial debt, especially for those with seasonal income, like farmers.

It is, therefore, important to have documented contracts and financial statements. Channel all the payments received through a bank account so that the financier can have an accurate and correct proof that your business is generating income. 

What most self-employed or small businesses end up doing is receiving payment from their clients and using the money as working capital without banking it first.

Paying your suppliers via mobile phone transaction can also become difficult to proof to your lender. According to George Gitonga of The Mortgage Company, your business should have been running for at least three years to prove that you have gone through the hurdles of a start up business, and have established and focused on your line business.   

Having audited accounts will go a long way in showing that facilitating your lender with the true financial position of your source of income.

Keep proper records

This means your company should have systems that will help tabulate profit or losses based on income and expenditures. 

Obviously your lender needs proof that your company turnover and profits are consistent or increasing, which is easier said than done.

Lack of a salary pay slip makes it difficult to get an unsecured loan when self-employed, you should have an asset that can act as collateral.  Scout around and look at different banks in advance to find out the conditions of securities they accept so that you can equip yourself accordingly. 

Shop around

You may be surprised to find that some banks do not accept car log books, others do not accept title deeds of up-country plots, unless it is either farm land or has a shelter on it. 

It is also advisable to ask your broker for a full cost structure so that there are no surprises and tabulate the monthly repayments and overall amount to be repaid at the end of the loan term. 

Depending on the product taken, other costs that may be incurred are valuations, fees for plans, legal fees and stamp duty.