Applying for a refinancing of a loan or a mortgage can be a tough process, but even more so for those who are self-employed. Banks can always verify the cash flow for a salaried employee against official income statements from the company, but it becomes trickier for self-employed individuals. Therefore, banks and lenders become more reluctant to approve refinancing of a loan or a mortgage for those who are self-employed.
Generally, if a business owner has been self-employed for less than two years, it can be extremely hard to prove credit worthiness to obtain the required refinancing, just as is the case with applying for a normal first time loan. However, there are ways that can show the banks or lenders that the applicant is a good bet for the refinancing. A small business owner or a homeowner should follow the following steps to help increase the chances of being refinanced.
- Present Accurate and Detailed Financial Statements
To prove to a lender that your business is running smoothly and with stability you can show your profit and loss statements which provide the necessary concrete figures. These statements can show the lender that the business is a viable venture and that refinancing the business owner is not too risky.
- Have A Large Savings Account
By showing that you have a good sized amount of savings, you can prove that you have the necessary funds to stabilize your business if you go into a slower season. Furthermore, it shows that in a worst case scenario, you will be able to make payments on the refinanced loan easily. A large savings account acts a cushion for you and as the security that the lender requires.
- Keep Your Credit Score Favourable
Over the years that a small business owner has been self-employed, it is crucial that the credit score remains favourable. All personal and business related financial transactions should reflect this positive score as it is the indicator of credit worthiness that lenders rely on most often. A higher credit score assures the lender that you will be able to pay the interest on your refinanced loan or mortgage easily.
- Increase Your Reportable Income
Generally, self-employed individuals are able to deduct quite a lot from their income by charging it to the business and thus having to pay a lower amount of taxes. However, since lenders and banks observe the taxable income as a measure of credit worthiness, it is better if you do not deduct too much from your income so as to have a higher reportable income.
- Look For The Best Lender
There are many banks and lenders on the market. You should naturally proceed cautiously and approach the one that is most favourable to your financial situation. A lender that does not scrutinise too much and charges a lower interest rate is the ideal situation. However, banks usually are equally scrutinising in their practices. A safe bet in this case, especially for a small business loan is to approach a business cash advance lender. They fund a business by providing cash up front in return for a share of the future credit card sales. They do not require a lot of paperwork and are generally less inclined to look into the credit worthiness.
While running a business on your own is a very tempting endeavour it does pose a lot of problems that a salaried job does not, especially relating to finances and dealing with banks. That being said, there are always ways to maintain a healthy financial situation of the small business and several non-conventional options for refinancing loans, as well as ways to increase the possibility of a refinance. Keeping an accurate record of the finances and a close eye on business operations helps as it reflects upon the seriousness of the small business venture.