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Secured loans for Self Employed borrowers
Secured loans for self employed borrowers are often used when a larger loan amount is required. Also where a remortgage is not practical or unsecured loans are not readily available.
Getting secured loans when self employed can be challenging as so many banks apply harsher criteria. However, there are lenders which offer products specifically aimed at catering for the diverse needs of self employed borrowers. For many, these loans provide some great options to raise cash for personal or business use. The lenders tend to be more flexible than traditional mortgage lenders. Therefore, secured loans for self employed are often available when other forms of borrowing are not.
If you have a poor credit history, unusual income or want to borrow a large amount, a secured loan for self employed could be what you need.
Self employed secured loans are available from £10,000 to well over £1million. At Promise we will automatically compare a secured loan with the option of remortgaging. Then we can advise which is most suitable so you know the mortgage option is not been overlooked.
Secured loans if self employed for less than 1 year?
Self employed secured loans are available for borrowers who have been trading for a minimum of six months. Lenders may ask to see management accounts, bank statements, plus projections from the accountant. Contractors who have become self employed in a similar role are more readily considered as they can evidence a history of income more easily. If setting up a new business, it is still helpful if you have previous experience the the same type of business. Some lenders will also expect you to be registered for self assessment for the relevant business activity. Click here to register for self assessment on the government website
Loans for business purposes are easier to obtain than loans for personal use. Therefore, the rates and types of secured loan available vary. There is greater choice for those self-employed applicants who have a profitable, established business. If you can wait until your first years trading is complete you are likely to find more choice and lower rates.
Start up loans
There are specific unsecured start up loans for sole trader and limited company businesses trading less than 2 years. These can also offer a cost effective solution. They will work more on projections so are particularly good for businesses which are about to start or recently commenced trading. The start up loan is intended for business purposes. However, it could help repay money you have lent to your business to get it started. Thus giving you cash back to use personally CLICK HERE to read about, or apply for a start up loan
Secured loans if self employed more than 1 year
Whilst accounts will strengthen any application, a number of lenders will accept SA302’s as proof of income. Sometimes backed up by bank statements. Often the latest accounts have not been prepared. Explain this to an adviser, and they can also look at lenders which will accept projected profits from your accountant.
The more years of proveable income you have, the better. If you are a sole trader, your income will be assessed, in most cases, based on your previous years declared income for tax. However, some lenders will consider management accounts or an accountants projection. Remember keeping your income low to reduce your tax will also restrict how much you can borrow.
Salary, dividends and retained profit
Those borrowers who have set up a limited company structure will be more familiar with lenders judging their income based on their salary and dividends. If profits were retained in the business, most lenders would ignore them as they are not being drawn as income. However, common sense can prevail with some lenders. They may add back retained profit in to the affordability calculation. Or rely on accountants projections of future income. Just because business owners have not stripped out profits in the past, why should they be penalised if they wish to do so in the future to service their proposed debts? This is a sensible bespoke underwriting approach to offering secured loans for self-employed borrowers. Consequently we get far more success than a blinkered rules based attitude adopted by main mainstream lenders.
Secured Loans to limited companies (including start ups or where bank debt has been called in)
Those who are trading through a limited company can take out business loans secured on their homes or on business premises they own. These have proved useful for those declined by the high street due to insufficient trading accounts or a poor credit history.
We have seen scenarios where lenders have allowed a third charge. This allows self-employed borrowers to retain their competitive first and second charges and borrow less at the higher business interest rates. A third charge is also helpful where the bank (sometimes holding a second charge for an overdraft) wants its debt reduced. Recalling the whole debt could scuttle the business. We have therefore arranged loans to simply keep the bank at bay whilst the business either restructured or improved trading.
Where borrowers are starting a new business in a limited company, our lenders will lend in scenarios the high street lenders would never consider.
Many contract workers are penalised because they move from one job to another. This is despite enjoying virtually continuous employment – or should we say self employment?
Whilst most lenders are nervous of this scenario, we have lenders which recognise the transient nature of the contractor’s role. They effectively treat them in a similar manner to employed borrowers. They will be looking for stable and regular income but are sympathetic to people who move contracts or even industry. Explain your situation to a Promise Money adviser. They will approach the lenders most likely to accept your application at the best rates we have available.
Landlords, Buy to Lets and HMO’s
In the BTL sector raising capital for deposits or to refurbish properties has become tougher. This is due to changes in tax laws and regulations which more rigorously test affordability.
The second charge sector has reacted in a number of ways with some prime lenders reducing their rates. Other are offering 5 year fixed rates and allowing additional earned income to be used to support shortfalls in the rental coverage. More cases are now being accepted as a result of these changes.
Some lenders are less affected by regulations so can offer more generous affordability rules which are not available in the mainstream mortgage market.
Self employed with credit problems
Many self employed people suffered during the credit crunch and damaged their credit history whilst trying to stay in business. Some even went out of business. A bad credit history is not a barrier to the self employed provided they can afford the proposed loan now and have property to offer as security.
Mild adverse credit can be catered for at prime rates although heavy adverse is also acceptable up to 75% LTV.
Some self employed people have been forced to resort to debt management during the downturn resulting from the credit crunch. Lenders will now consider borrowers who are keen to repair their credit history by paying off debt management plans. This allows them to access the mainstream remortgage market sooner. This may not always be good advice so options also exist to keep the debt management plan in place provided it is being adhered to. Even IVA’s and bankruptcies can be cleared from the proceeds of a loan where it is suitable and affordable.
Summary on secured loans for self employed, limited company owners and contract workers
If you have been turned down for a mortgage, unsecured loan or a further advance, talk to a specialist adviser. Even if you have been accepted, it is worth comparing what is available as greater choice may be available from the secured loan market.
Overall, the second charge secured loans sector is generous to self employed borrowers. There is an appetite for manual underwriting combined with the tenacity and expertise of specialist brokers and lenders. Brokers who know the finest detail of lenders criteria aren’t afraid to present a case where common sense should prevail.
Speak to an adviser to submit an enquiry for them to work on for you.
Promise Money is a broker not a lender. Therefore we offer lenders representing the whole of market for mortgages, secured loans, bridging finance, commercial mortgages and development finance. These loans are secured on property and subject to the borrowers status.
More than 50% of borrowers receive offers better than our representative examples
The %APR rate you will be offered is dependent on your personal circumstances.
Mortgages and Remortgages
Borrow £270,000 over 300 months at 7.1% APRC representative at a fixed rate of 4.79% for 60 months at £1,539.39 per month and thereafter 240 instalments of £2050.55 at 8.49% or the lender’s current variable rate at the time. The total charge for credit is £317,807.66 which includes £2,500 advice / processing fees and £125 application fee. Total repayable £587,807.66
Secured / Second Charge Loans
Borrow £62,000 over 180 months at 9.9% APRC representative at a fixed rate of 7.85% for 60 months at £622.09 per month and thereafter 120 instalments of £667.54 at 9.49% or the lender’s current variable rate at the time. The total charge for credit is £55,730.20 which includes £2,660 advice / processing fees and £125 application fee. Total repayable £117,730.20
Annual Interest Rate (fixed) is 49.7% p.a. with a Representative 49.7% APR, based on borrowing £5,000 and repaying this over 36 monthly repayments. Monthly repayment is £243.57 with a total amount repayable of £8,768.52 which includes the total interest repayable of £3,768.52.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME
REPAYING YOUR DEBTS OVER A LONGER PERIOD CAN REDUCE YOUR PAYMENTS BUT COULD INCREASE THE TOTAL INTEREST YOU PAY. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
Promise Money is a trading style of Promise Solutions Ltd – Company number 04822774Promise Solutions, Fullard House, Neachells Lane, Wolverhampton, WV11 3QG
Authorised and regulated by the Financial Conduct Authority – Number 681423The Financial Conduct Authority does not regulate some forms of commercial / buy-to-let mortgages
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