Why do banks discriminate against people who own a business?

[peastman]

To get a loan as a salaried employee all the banks need is a personal tax return to confirm income. However if you are a director of the business you work for, you have to supply the company financials for 2 years as well.

To me it does not make sense.

The employee is far more likely to loose their income without notice than a director.

The business an employee works for is just as likely to go broke as any other.

The banks do not ask for 2 years of financials of the applicants employer.

I find it very weird that one of my employees would be considered a better risk than me, even though its me that controls how much my employees earn.

 

[kathryn d]

Only option would be to hire yourself?

You make a valid point.

 

[Keentobuy]

It's risk management. Whilst your business income might very secure, the unfortunate facts are that many businesses are less secure and some shut up shop altogether.

 

[Jodie701]

Is it a full doc loan?

I thought that business owners tend to go low doc for that reason?

 

[Rolf Latham]

Hiya

I know it looks that way on the surface.

The stats show otherwise

With around 4/5s of businesses not making the first 2 years, and of then around 85 % of the remainder dont make it to year 5.

I employe a couple of staff. Its amusing the lenders will take 2 pays from me for them, but want 2 plus years financials for me .............but thems the rules

ta
rolf

 

[RedCat]

I have the same problem. I've been self-employed for 12 years in my business. I think that should make me look stable. The highest monthly costs my business have, are wages to me and my husband, followed by wages to an assistant and rent to my trust for the office. Running costs are low, business is stable and shows great growth over past 3 years yet I'm still seen as a bigger risk than my assistant.

Until just recently, I've had to go lo-doc with 20% deposits and there was no way out of it.

 

[Dazz]

.....and let's not even start to mention if your primary / only business is Landlording and the Banks say you are "too rent reliant".

I mention that their business is perhaps "too interest reliant" but they cannot see the parallel.

 

[peastman]

Only option would be to hire yourself?

I am actually employed by the business, in the books as a PAYE which has given me a consistant wage for over 20 years. It's not really a problem, just a bit annoying really.

With around 4/5s of businesses not making the first 2 years, and of then around 85 % of the remainder dont make it to year 5.

Since we have now been in business for over 20 years now, that should make us a very low risk.

.............but thems the rules

That says it all. It's their money and if you want some of it, you have to play by their rules

.....and let's not even start to mention if your primary / only business is Landlording and the Banks say you are "too rent reliant".

I mention that their business is perhaps "too interest reliant" but they cannot see the parallel.

You would think being "Rent Reliant" would be low risk with such low vacancy rates around Australia

 

[Bradsdad]

It has been know for Directors paying themselves high wages at the expense of the Company and running it into the ground. Lenders want to ensure that the Company is at least breaking even after paying the wages.

 

[Aaron Sice]

i've been in business 4 years now and still get made to jump through hoops.

each year has shown a progressive step up in income.

minimal overheads (software upgrades, a new office chair, business car).

and still i'm grouped with people with bad credit and dole bludgers.

 

[MTR]

To get a loan as a salaried employee all the banks need is a personal tax return to confirm income. However if you are a director of the business you work for, you have to supply the company financials for 2 years as well.

To me it does not make sense.

The employee is far more likely to loose their income without notice than a director.

The business an employee works for is just as likely to go broke as any other.

The banks do not ask for 2 years of financials of the applicants employer.

I find it very weird that one of my employees would be considered a better risk than me, even though its me that controls how much my employees earn.

I don't like it but I can understand why banks have this in place.

Firstly, 80% of business' go bust in first 2 years.

If you are an employee and business goes bust worst case scenario you lose your job, so find another job.

As a Director of a company if you go bust you will have creditors chasing you for outstanding debt and all your assets will be on the line.

ATO and Bank are secured creditors and take priorty over unsecured creditors. If the company can not repay its debts then everyone is stuffed, except the adminstrators who get paid for their services regardless.

Cheers, MTR