Turn to the business section of any national paper, listen to media sources or look at business websites and you understand one of the major hurdles a business faces is ‘access to finance’ to start out or grow. But this problem does not end there – access to personal finance for business owners can cause even bigger barriers.
My eldest son started his own business at the beginning of this year and decided recently he would buy a house, something to invest his money in that would bring him a greater return than clothes, beer and sunshine holidays. I commended him for his thinking but warned it would be easier to find a needle in a haystack than find a high street bank, or any other financial institution, that would give him a mortgage as a self employed person that been trading for only 6 months. He rolled his eyes, what does Mum know, and set off to meet an independent mortgage adviser, who had helped a self-employed friend of his.
Uneven playing field:
It turned out I was right; most High Street banks will only consider a self employed person for a mortgage if they can provide accounts showing 3 years of trading (some may consider 2) AND those accounts need to show a year on year increase in profit or questions will be asked. Add the fact lenders will only take your net profit and not your turnover in to account and things start to get frustrating. Do not think this can be overcome if you are a Director of your own limited company, therefore an employee in the eyes of HMRC, if you own more than 25% of the shares you are considered to be self-employed not an employee by the banks.
All the above seems a little unfair when as an employed person there is little or no timescale required before you apply for a mortgage as long as you have a letter from your employer AND your gross salary is the basis for the mortgage level not your net.