Small Business Owner Lending for a PPOR

Hi everyone,

I am in a bit of situation. I have recently switched from a full-time job to be self-employed running a small business. As we just had a new born (our third one), we are looking to buy a bigger PPOR.

The challenge is my business isn't making money as it had just started and my wife has been on maternity leave for the past year. She is going back to work in July but essentially we have very little cash-flow right now

On the positives, we do have a couple of IP purchased a couple of years back and there is alot of equity. We also have around $200k in deposit. We can sell one of the IP and even our current PPOR to get around 40 to 50% deposit, but we still need financing.

Given our poor cash-flow can we still get a PPOR loan?

Thanks
Dboy

 

Lenders won't really consider your income right now with a new self employed role. They typically need some history in the role. It will depend on which industry (medico's may find it easier to obtain solutions), but your looking at least 3-6 months before lending options arise that include your income. Mix that in with mat leave, most lenders will require two years history.

You'll find your borrowing power will be different over time.

Now -> not very good, unlikely to be able to borrow from the limited information above
In July -> may be able to get some funding, depends on cash flow situation from your wife
In 2019 -> Better, depending on how your business is performing. Rates and product choice will be limited, so it may cost you, but there'll likely be some funding options that you can temporarily use to get in earlier
In 2020 -> Back to normal funding options, but again will depend on how your business is performing. Your 2019-2020 tax returns will be key here.

 

The short answer is that you will only be able to borrow if you can demonstrate you can meet the repayments without undue hardship.

How would you meet the repayments?

 

What type of self employed (sole trader? Partnership? Pty Ltd?) Is that within the same industry as before when you were an employee?

Sometimes banks can consider a loan if you just switch from an employee to self employed (this happens alot in IT and medical) and if you can show the biz have been generating enough cash flows technically you don't really need to wait for 2 years.

But when you say you have very low cash flow is that because you just made some capital purchase? The reason of your low cash flow would be critical, it might be a deal breaker or it might not be as bad. This needs more context.

Since your wife will be going back to work in July as long as you have enough cash savings to meet interim loan repayments it might be possible. (your $200k savings maybe able to allocate some portion for repayments)

After all like what Terryw said as long as you can demonstrate enough income from all sources to service a loan, your current situation could be mitigated.

 

Having good business accounting support to demonstrate future cashflow's is important in these situations.