The UK leads the way in self-employment and has many entrepreneurs who already own their own business or aspire to start one. This article initially gives some details on which sort of borrowing options are available and the deposits lenders are looking for, the remainder is a discussion on evidence needed to support your income and affordability, together with detailing some lenders who could agree such finance.
Broadly speaking in terms of commercial borrowing options repayment terms vary from 1 to 40 years with loans ranging from short term amounts up to £25,000 and longer terms for advances up to £2 million. None commercial secured funding (i.e. mortgages and remortgages) allows similar amounts but the longest terms are 25 to 30 years.
Funds will be required from the borrower towards certain borrowing routes for the self-employed. If you are buying residential property (that you are going to live in) you will need a deposit from 5 to 10% minimum. For the buy to let landlord looking to expand their property portfolio a 15% minimum deposit is the norm right now. If it’s a commercial business purchase, be it to buy someone else’s business or start up may need circa 25% towards the purchase from the buyer.
Following the mortgage credit directive (MCD) being rolled out in March 2016, a greater emphasis has to be placed on affordability by lenders. Whilst the MCD focuses on residential lending the obvious impact on lenders to make sure borrowing is affordable will inevitably impact on commercial lending decisions.
Business owners will need to provide income to lenders so that they can make sure you are borrowing within your means and can repay the debt. Solid business plans can help show the future is looking rosy but previous income will be a big factor.
For existing, established limited companies or partnerships one or two years minimum of certified accounts will be sought for mortgage / remortgage borrowing. For sole traders and small businesses / mixed income individuals you can get evidence of your earnings (‘SA302’) for up to the last 4 years online once you’ve sent your self-assessment tax return to HMRC – albeit many lenders will not need that much income history.
At the time of writing the good news there are around 55 mortgage lenders who will accept an SA302 printed of by yourself from your HMRC account as your income for taking out a residential purchase mortgage or remortgage. They may also accept a print of your tax calculation used to submit your tax calculation to HMRC. Some lenders will work on a short a period as one year, others may require up to 4 years.
Please note these lenders will probably also require you to send a tax year overview, however again this can be printed of by yourself from your HMRC online account. Stuart Johnson of encourages business owners to become familiar with and use all the online tools HMRC offers as; “This takes away the need for the lenders or advisers to wait on HMRC to communicate with them directly about your earnings, thereby simplifying the process and enabling borrower to focus on finding the most suitable mortgage for their needs.”
If it is purely commercial borrowing you require, there are banks and specialist lenders, as well as venture capital funders who will consider commercial lending. This is a somewhat specialised area, with a subsidiary set of lenders who focus on commercial secured and unsecured lending. The state of the economy and the support of government funding can have a big impact on what is available to lend. A few lenders names and one of their associated specialties are:
- Bank of Cyprus – Public Houses
- N&P Commercial – Retail
- Santander Corporate – Farms
- Aldermore – Commercial Investment Property
- Natwest–Nurseries & Schools
These may be subsidiaries of larger lending corporations / banks or standalone entities.
Venture Capitalists these work differently, as instead of securing the debt on your property / business with a mortgage charge, they will usually take an equity stake in the business in exchange for a sum – the broad idea being that they help you to grow and then sell their stake for a good profit, they may sell back to you or to another party.