Applying for a bond if you’re self-employed

Applying for a bond if you’re self-employed

Author: Matthew Davidse

Obtaining a bond as a self-employed individual can appear a daunting prospect with an application process seemingly fraught with complexity and additional criteria. However, with adequate preparation and support from professionals, accessing finance is within reach.

Are you actually deemed to be self-employed?

It would be worthwhile to ascertain upfront if the banks would assess your home loan application on the basis of you being an employed or self-employed individual.

Generally, it is dependent on whether you own a reasonable enough shareholding/member’s interest in the business for which you work, and to what percentage of the business your shareholding extends. The minimum level of shareholding required to be deemed as ‘self-employed’ differs from bank to bank. A reputable bond originator intimately understands the bank’s requirements and can assist you in obtaining clarity in this regard.

Another important factor is how reliant you are on the income you derive from your business in order to qualify for the home loan you’re applying for. This is especially relevant if you have a permanent, salaried job but also derive income from your shareholding in a business.

Which documents are required as part of your bond application?

  • A letter from your accountant/auditor confirming your personal monthly income.
  • Comparative financials noting the income and expenditure of the most recent two years of trading or working.
  • Up to date signed management accounts if your financials are more than six months old;
  • A cash-flow forecast for the coming 12 months.
  • A personal list of assets and liabilities.
  • Bank statements of both the business and yourself going back 6 to 12 months (depending on the banks requirements).
  • Your most recent ITA34 (notice of income tax assessment from SARS), which confirms that your tax affairs are in order.
  • The ID documents of all the Directors, Members or Trustees, where applicable.
  • Your company, Close Corporation or trust’s statutory and/or registration documents, if applicable.
  • A short CV may also be required.

Note: since each application is considered on a case-by-case basis, the documents required could differ from bank to bank.

Presenting a strong case to the bank

Certain factors would go a long way in assisting your application to reach a favorable outcome. Such factors include:

  • Saving up for a deposit before applying for a loan.
    • Being in a position to put down at least a 10 – 20% deposit of the purchase price would assist in proving that you are financially responsible, thus reducing your risk profile to the bank.
  • Pulling a credit score report prior to applying.
    • The higher your credit score, the higher the chances of your application being successful. Additionally, it would also affect the interest rate you’d receive on your repayments.  Should you have a credit score of below 600, you will be considered as either a high to very high risk to the bank. Here a low credit score will substantially hamper your chances of obtaining a home loan.
  • Ensuring that your business is in a healthy financial position.
    • The financial statements you submit to the bank must be accurate, up-to-date, complete and in the required format required by the banks. The financial statements submitted should also reflect a business which is self-sustaining, profitable, solvent and having adequate liquidity (the ability of the business to pay off its current liabilities).  
  • Managing your personal finances carefully.
    • The income you receive from the business should be as consistent and regular as possible, and your personal expenses be kept separate from the business’s expenses. Furthermore, your personal income from the business should not only be adequate for you to qualify for the loan amount, but also be deemed sustainable for the business in the long term.

In conclusion, before looking for the perfect home the importance of having your financial affairs in order cannot be overstated. Additionally, by preparing the necessary documents beforehand and making use of a bond originator will make the process of applying for a home loan a lot smoother, prevent costly delays down the line, and increase your chances of success.

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