Self-employed individuals are often viewed as high-risk candidates among financial institutions. Lenders may be unwilling to provide finance to individuals who are self-employed, on the grounds that they are perceived to have an unstable source of income.
Due to the unpredictable nature of earnings of self-employed individuals, it may make it more difficult to work out whether they will be able to afford to make repayments or not.
The reality is that banks are more likely to grant loans to individuals who have demonstrated financial discipline in the past.
The perceived risk of being self-employed is much greater in South Africa than in other parts of the world. This may be because South Africa’s economy isn’t as stable as first world economies.
Here’s how to get a loan if you’re self-employed:
Have your financials in order. Make sure that you maintain a good credit record. Make all payments on time and make sure you don’t skip payments.
Confirm whether the business will be able to pay you (the self-employed individual) a justifiable salary. This way, you minimise the risk taken on by the lending institution.
Prepare 6 months’ bank statements. These will be used during the assessment. You should make sure that your bank statements accurately reflect your financial standing. For instance, you should use the bank statement for the account into which your salary is paid.
Prepare a comprehensive income/expenditure statement for the business. This will provide a clear outline of how much money your business is bringing in.
Have the latest business and/or personal financial statements ready. It’s important to make sure that your financial statements are in order and ready.
Have the management accounts for the current year, verified by a qualified professional. This will reflect well during the application process.