Whatever the reason you're looking for a loan whether it's consolidating debt, buying a car, or refurbishing your property it can often be more stressful for those who are self-employed.
With more and more people deciding to become self-employed we've put together some tips that can help.
Here are five essential tips:
1: Plan in advance and get organised
In these tough times, lenders look for reassurance that freelancers or self-employed workers will be able to continue making payments. In particular, lenders are looking to see how sustainable a business is.
Generally, banks need a minimum of two completed years of trading and tax documents from freelancers. And as anyone with a small business will know, pulling this information together can take a while. Therefore, it is important that a business shows evidence that the levels of trading are back to pre-COVID-19 levels.
Freelancers might also need to give more information about the nature of their business. To do this, make sure your tax payments are up to date and that your tax returns are submitted on time. Applications can take a lot of work, so being organised is key.
2: Consider the importance of an adviser
The amount of work you'll need to do is significant, and frankly, doing it yourself might not be worth your while.
One thing that most self-employed people will know off the top of their heads is their hourly rate. A quick calculation could reveal it might be better to outsource the tenuous parts of the process to an expert adviser. Advisers will do a better job, in a fraction of the time. It might just help keep your bank account, time and general sanity in check over the process.
3: Don't just chase the rates, find the best bank for your needs
When it comes to loan applications, there are a few more hurdles to jump over if you're self-employed. And finding a bank that caters to your circumstances is not always the one with the cheapest rates. Every bank has different criteria, affordability and underwriting so it is important that you find the right one for you, even if that means breaking away from your current bank or building society.
While it might be tempting to apply for the bank with the cheapest interest rate, would-be buyers should shop around and broaden their search. This is where a mortgage adviser plays a pivotal role. Having a mortgage adviser on board can increase your chances of finding the best possible deal as they have whole-of-market experience in searching current deals.
4: Boost your credit rating
Having the best possible credit file is important when applying for a mortgage, and not just for freelancers. There are 3 main Credit Reference Agencies in the UK, Equifax, Experian and TransUnion, and it is important that you (and your broker) know what data they hold on you and are sharing with banks.
There are also some simple things you can do to ramp up your creditworthiness. One tip is to make sure you're registered to vote, and your current address is updated for bills and statements. In the UK, it's estimated that over 9 million of us aren't registered to vote with a current address.
5: Make sure you're self-employed for at least one year before you apply
When you are self-employed or freelance you become your own business. And because there's no guarantee that you'll get work and a steady income, banks usually want to see that you've got a bit of history under your belt.
They'll be looking to see that you can sustain an income throughout the year and be able to afford your monthly payments. This is why you'll normally need at least one full year self-employed, and ideally, a lot more before the banks will consider you. A small number of banks will consider an application with a minimum of one year of self-employment with accounts and tax returns finalized and submitted, the majority of banks would require two years as a minimum.
Despite the challenges ahead, people who are self-employed shouldn't feel put off. There are lots of things you can do to get ahead and make sure you're in the best position possible to apply for a loan.