Home Loans For Small Business Owners

A guide for small business owners looking to apply for a home loan – from the loan comparison specialist, Savvy

Last updated on April 20th, 2022 at 05:19 pm by Cate Cook

Compare home loans for small business owners

Buying your first home is a big step, especially when you’re also trying to run your own company as a small business owner.  Savvy looks at the different home loan options available to small business operators and the paperwork you may need to supply when applying for a home loan.  We can help you compare and save for all your finance needs.

How do I get a home loan as a small business owner?

As a small business owner, you’re self-employed.  Previously, the big banks were reluctant to lend money to self-employed people, but that situation changed when online lenders stepped up to fill in that gap in the Australian home loan lending market.

As long as your company has been running for at least two years and is showing a good profit, there’s no reason why you can’t apply for a home loan in the same way as any other PAYG employee and be confident of being offered a very reasonable low interest rate.

You have several options available to you if you don’t quite meet the standard home loan eligibility criteria, though.  These include:

  • applying for a low doc home loan with an online lender, particularly one which specialises in approving loans for non-conforming borrowers (if your company has not been running for a sufficient time or you don’t have the full documentation required)
  • providing a higher than usual deposit – the usual deposit required by a lender is 20% of the price of the property you wish to purchase. If you can offer more than this, such as a 30% deposit, your chances of loan approval may improve dramatically
  • asking a close family member with equity in their own home to act as a guarantor for you – this would mean that your family member would agree to be responsible for the loan if you become unable to pay it and can allow you to sidestep the requirement for a deposit to be made at all in some cases
  • applying for a home loan in the name of your company – this may be an option for you, but it will mean that all directors of your company would have to agree to be guarantors to your loan and you would lose out on CGT benefits if you were to sell your property

What paperwork will I need for my home loan application?

The paperwork that you’ll need to provide to your lender will have to prove your identity, your assets and liabilities and how much it costs you to live.  You will also have to provide information about your company, and how it is performing.

Personal documents you’ll need include:

Personal Identification:

You’ll need to provide 100 points of ID, including at least one document that includes your photograph and a signature.  These may include:

  • your passport (which must be current or expired no more than 2 years)
  • your birth certificate
  • your Australian citizenship certificate
  • your driver’s licence (which is currently valid)
 

Details of your income:

  • how much you receive personally from your company
  • any income you receive from any other sources
  • any government benefits you are entitled to, such as family tax benefits
  • any dividends, interest or rental income from any investments
  • a copy of your tax returns and Notice of Assessment for the past two years showing your declared income
 

A list of your assets:

This should include the registration certificates or other proof of ownership of all:

  • cars
  • caravans
  • boats and trailers
  • other recreational vehicles you may own
 

Also, include in your assets list:

  • shares you own
  • other valuable items over $5,000, such as jewellery or collections
  • your superannuation balance
  • any cash deposits or savings you may have
 

A list of your liabilities:

This should include all monies that you owe to other people or institutions including:

  • any other loans you have in your own, or your company name
  • all credit cards with details of their credit limit
  • all other store credit or lines of credit you have in your or your company name
  • all child maintenance payments you may be liable for
  • any other court-ordered debt, fines or promises to pay that you’ve made
 

A list of your living expenses

This should show details of how much it costs you to live, so it should include figures for items such as:

  • your current rent or mortgage
  • utility bills such as gas and electricity
  • your phone, internet and telecommunication contracts
  • all the cost of subscriptions and memberships to gyms, sporting clubs or organisations that you belong to
  • an estimate of the cost of buying food and clothes for your household members
  • how much you spend on leisure items such as movies, going out, take-away meals, coffees and more
 

You can use Savvy’s budget planner calculator to combine all your household expenditure items into one single document to make your loan application easier and give you a better idea of what sort of loan repayment you can afford.

Business documents required

In addition to the above personal documents, if you’re looking for the best home loan for a small business owner, you’ll also need to supply the following business documents:

  • your company ABN, ACN and TFN
  • your company tax returns for the past two financial years
  • your company Notice of Assessment for the past two years
  • your company Business Activity Statements (BAS) for the past 8 quarters
  • a profit and loss statement for your company for the past two years

What type of home loan is the best loan for self-employed Australians?

As a small business owner, your personal income may grow as your company grows – so you should think about a loan that is as flexible as possible.  This may mean a variable home loan that offers you plenty of additional features may be your best option.  Additional features that can come with a variable rate home loan include:

  • an offset account – so you can place your savings in this offset account and have the interest cost of your loan reduced (offset on a dollar-for-dollar basis)
  • the ability to make additional repayments – so you can make more repayments over and above your mandated repayments, reducing your payable interest and overall term
  • repayment flexibility – so you can choose how often you make your loan repayments, and pay your loan off sooner if you choose to
  • a redraw facility – so you can redraw your additional repayments if you suddenly need additional cash for company growth or investment
 

However, on the other hand, a fixed rate home loan will offer you the certainty of knowing exactly how much your loan repayments will be for the entire period of the fixed rate.  This known quantity could be valuable to you as a small business owner if you are juggling all the costs of growing your business.

More of your frequently asked questions about home loans for small business owners

Who are the best lenders for small business owners?

If you have two or more years of business financial data available, a robust balance sheet and a high credit score, the best lenders offering the best loans are to be found by carefully comparing all the different home loan products available on the Australian market.  By careful comparison, you should be able to find a loan that meets your needs with a perfect fit. Savvy offers loan comparison information side-by-side in a clear, easy-to-read format.

What if I can’t meet all the big banks’ lending criteria?

In this situation, small business owners may find the best home loans for self-employed Australians are offered by online lenders who specialise in non-conforming loans.  Their lending criteria tend to be less stringent than those of the big banks. These lenders may offer the best chance of home loan approval for self-employed or those who don’t fit lending criteria in other key areas.

Should I apply for pre-approval for my home loan?

Yes – applying for pre-approval for your home loan (also known as conditional approval) will give you a good indication of how much your lender may be prepared to loan you.  However, pre-approval isn’t the same as full home loan approval, meaning it isn’t a guarantee you’ll be approved for the same amount in a few months’ time.

Will I have to pay a higher interest rate because I’m self-employed?

No – many lenders offer very competitive interest rates to self-employed people, whether you opt for a fixed rate home loan or a variable rate loan.  You can find the best home loans for self-employed Australians by comparing loans with Savvy, so search until you find a lender and a loan that perfectly suits your individual needs.

How can I maximise my chances of home loan approval?

Some of the ways you can increase your chances of approval include:

  • showing a positive credit history with no defaults or bankruptcies
  • only applying for the amount you need and can afford
  • supplying a letter from your accountant on company letterhead stating that your company turnover and profit figures are accurate and have been audited and found to be correct
  • cancelling all unnecessary lines of credit and store credit accounts
  • paying off your credit cards in total before your loan application, and reducing their credit limits to as low as possible
  • cancelling any betting accounts you may have in your name