There’s something incredibly appealing about being your own boss. Perhaps it’s the freedom to take two hour-long lunch breaks or being able to wear flip-flops to your heart’s content. Either way, you might feel like it’s your time to take that leap of faith and start your own business.
Unsurprisingly, there are many difficulties you could face as a self-employed worker, including struggling with getting home loans. Here are several tips to keep in mind that’ll later help you over those walls.
1. Organisational obstacles
A business is like a vehicle. How well it’s designed and built from the get-go can mean the difference between speeding along nicely and breaking down midway due to kinks in the system. Self-started operations are no different. As the sole boss, it’s up to you to make sure your business is well-oiled before setting out.
The Department of Industry, Innovation and Science recommends creating a business plan. On it, you should write down:
The target market and how you will reach them
The short and long vision for your business
Your targeted profit over a timeframe
How much financing you will need
The people and skills you need to make it work
While this is by no means a comprehensive list, it’s a good place to start. This way, you can reduce the number of unforeseen surprises along the way. Not to mention, having a healthy, well-oiled business will make dealing with mortgage lenders a much easier affair.
2. Cash flow conundrum
When the dollars start trickling into bank account, it may be incredible tempting, instinctive even, to treat it all as cash in the pocket. However, this can be dangerous and leave you struggling to pay those bills. This is because it’s common for cash flow to be irregular and staggered for these self-operated businesses.
The Australian Securities and Investments Commission suggests having two separate bank accounts; one for business earnings and one for personal money. Pay your personal account a weekly wage while leaving the rest in the business account. This will mean you’ll have a stored amount of cash to draw from if unexpected work expenses pop up or cash flow temporarily dries up. Things like home loans should also be easier to obtain when you can show a consistent stream of income.
Also, never forget to set aside money for tax purposes! You don’t want to suddenly find yourself without the funds to pay the tax you owe. Have this prepared every month so you won’t have to deal with big men in black suits from the government breathing down your neck.
3. Financing frustrations
While there are many awesome perks that come with being your own boss, easily getting financing from banks is not one of them. When it comes to home loans, most lenders need just a little more coaxing to loan to self-employed workers. And no, we don’t mean complimenting the banker’s pink polka dot shirt.
Traditional mortgages require certain documentation such as payslips or letters from employers to prove your income and ability to pay back the loan. Those who are self-employed obviously won’t have these documents and/or may not have consistent income.
Fortunately, there are plenty of alternatives. These come in the form of low doc or self-employed home loans, and ask for different forms of documentation that small business owners should have little trouble providing.