Getting a loan when you work for yourself

Sole traders, company directors and contractors get knocked back constantly for reasons that have nothing to do with whether they can actually afford the loan. Most of that comes down to one lender reading your financials narrowly when another would read the same numbers properly. This guide is about the mechanics behind that difference.

What lenders look at

A typical self-employed assessment looks at two full financial years of tax returns and financial statements, and uses either the lower of the two years or an average, depending on the lender's policy. A single strong recent year does not automatically override a weaker one before it; some lenders will still weight the average, which is exactly the kind of policy difference that decides which lender can do your deal.

Add-backs, properly explained

An add-back is an expense your accountant has legitimately claimed that does not actually reduce the cash available to you day to day, and lenders differ enormously on which ones they will accept.

• Depreciation is almost always added back, since it is not a cash cost
• One-off expenses, like a piece of equipment bought and expensed in a single year, are often addable with the right paperwork
• Interest on business debt is sometimes addable and sometimes not, depending on the lender and the purpose of the debt
• Superannuation contributions above the compulsory minimum are treated differently lender to lender

One year of trading is not automatically a wall

A handful of lenders will consider a single full financial year of trading, particularly where you were doing the same work as an employee immediately beforehand and the transition is well evidenced. It is a narrower policy than the standard two year assessment, and it is worth an actual appointment before you assume the answer is no.

Alternative documentation, honestly

Where full financials are not available or do not tell the real story, alternative documentation lending uses business activity statements, an accountant's letter or bank statements instead. It sits at a different point on the risk curve for the lender, and that generally shows up as a smaller panel of lenders willing to consider it and sometimes a different rate structure. We will always tell you plainly when a file needs this path rather than the standard one, and why.

What to have ready

• Two years of financial statements and tax returns, or as many as you have
• Your accountant's contact details, since we work alongside them rather than around them
• Business Activity Statements for the current year, if you are trading on alternative documentation
• A rough summary of what changed year to year if your income has moved around

This is general information, not advice about your specific structure or income. Lender policy on add-backs and documentation changes regularly. The first appointment is free and includes a genuine read of your financials before anything is lodged anywhere.