Impact on Borrowing for Pty Ltd

Hi All,

I am considering to create a company where I will be the director, and in which I will use to provide my service.
Based on my research, usually lenders need to see at least 2 financial years of tax lodgments before lending money using this structure.
Is this correct, or does it depend on the lender? Is there any workaround?

If it is correct, what if on the first year, I take $x as salary?
Would this $x amount be considered as normal salary, i.e. can I simply say to the lender that I work for the company as salaried employee, hence the restriction of "2 year of tax lodgments" does not apply?

In the case of the "restriction" applies, do lenders average out the income of the company for those 2 financial years in their serviceability calculation?
For example,
FY1 Income = $50k
FY2 Income = $250k

Do lenders use $150k (0.5*$300k) in the calculation as the income, or they will take the latest number, i.e. $250k?

For the property itself, it will most likely not be purchased under company, but my / spouse name(s) or discretionary trust.

Any guidance will be much appreciated.

Thanks

 

Generally 2 years. But if you are contracting under PSI income it might be possible much sooner.

It doesn't matter who much the company pays you generally. Both company and you would be assessed together - if you own the company and are director you are basically self employed.

 

Different bank different policy

Will look at Income differently as a guide the following

- average of the last 2 years financials
- latest financials
- lower of the 2 financials
- regular deposit of salary.

 

Do I*need* to declare that I work for my own company?
I mean if say that I work for XYZ and I get paid $x amount p.a., will lenders usually ask if company XYZ is my own company or not?

 

For the average over 2 last FY method, what if the company just starts towards the end of the year and earn much less.
Let's say if company is founded now, only 1 month to go to end of FY.
FY 1 (only 1 month) = $20k
FY 2 (full year) = $240k

Will the lender using the first method (avg method) simply take 20k + 240k, then divide by 2 , i.e. $140k ?

 

No and they don't usually ask. But they will find out if you are a director of that company as it will appear on your credit report.

They won't know if you are a shareholder or even the only shareholder, but not a director, unless they dig deeper by doing an ASIC search on the company. They wouldn't do this generally, unless they find something by doing a google, your name is similar to the company, or a previous name is.

 

Different lenders will treat this differently. some will take the lower of the last 2 years, some will take the last years, some will take the last 6 months and some will average the last 2 years.

 

Related question and an opportunity for an MB to take up: I have borrowed in a similar structure under another company created just for buying property and both these companies sitting under a trust. My wife and I have then stood as a guarantor for the loan. Now if I apply for a mortgage for my personal IP or PPR, does this guarantor position reduce my serviceability or anything else?

 

It could reduce serviceability, it will depend on the circumstances and the lenders.

 

Thanks Terry! My lender for the 1st one was CBA and looking at the 2nd one from Westpac. Unsure what you mean my circumstances. Can you please clarify?

 

every situation is different. It will depend on the structure of the company, the income of the property, debts of the company etc.

 

Most lenders do a ASIC seach for your name (and spouse). If you are a company associate they want more info. You cant hide the income as if its an arms length employer. Brokers deal with this and know the deal and lender policies.