Getting finance when self employed

Getting finance when self employed

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Hello all,

I'm hoping someone can shed some light on this for me.  Although qualified I've been working in indusrty for the past 10 or so years so I'm more than just a little out the loop in certain areas.

To cut a long story short, a selff employed friend of mine has been refused a loan on the basis of information provided on an SA103.  The explanation given was that, in the lenders opinon, not enough profit/bottom line was made to enable them to offer the loan.  So far so good.

My problem is that the lender seems to have used the profit AFTER capital allowances when deciding that the bottom line was insufficient to service the loan.  One year subject to the lenders review just happened to be a year where a good chunk of plant was bought and therefore a large capial allowance claim was made.

Surely lenders cant base a decision on profit after capital allowances?

I am aware that there have been issues with the self employed and mortgages/loans in the past (removal of self certification etc etc). 

As I say, this may well be food and drink to most of you but I am a bit out the loop and this seems crazy. 

Thanks in advance for any replies.

Replies (8)

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By zarathustra
21st May 2013 14:48

Unfortunately this could well be correct

lenders tend to use taxable profit, and unfortunatelywith a high level of initial allowances currently being the norm, there can be large distortions. his accountant could write a letter but I dont hold out great hopes.

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Teignmouth
By Paul Scholes
21st May 2013 15:02

Interesting

The only time I've heard of this is when there are no formal self employed accounts, ie the only evidence of earnings are the self employed pages. 

If an accountant draws up formal accounts, incorporating depreciation, then these should be acceptable and if they are not then I'd try to find a lender from the 21st century. 

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By zarathustra
21st May 2013 15:03

@Paul

They often ask for SA302s nowadays

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Teignmouth
By Paul Scholes
21st May 2013 15:29

Thanks

What a joke.  Yet another reason to become a Ltd Company or try a P2P lender.

Maybe we could all have a whip round and come up with the cash, more exciting than the Co-Ops interest rate, he who dares and all that...!

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By johngroganjga
21st May 2013 15:37

Agreed - lenders need to learn to look at actual income not taxable income (while of course ensuring that the two reconcile).  But if borrowers do not take the trouble to ascertain and document their actual earnings, who can blame the lenders.  If the borrowers do not know what their actual income is how can the lenders possibly take it into account?  Just think how much worse it will get in future for those borrowers who opt for the cash basis for tax purposes!

Here the best solution is probably for an accountant, if client is willing to pay, to draw up a one page income statement on normal principles and attach an income tax computation to reconcile to the taxable figure.

 

 

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By bernard michael
21st May 2013 15:36

The rationale I assume is that  capital allowances derive generally from spending money,which

P & L fgures don't reflect in their simplistic minds

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By Craigie_Bhoy
21st May 2013 15:50

Thank you all for your input.

@johngroganjga i think thats a very sensible solution - a simple income statement and tax computation (reconciled) makes a lot of sense.

@paul I will send you my bank details on a pm - i will of course forward the funds on.

Many thanks again for taking the time to reply.

 Thanks at

 

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By Craigie_Bhoy
21st May 2013 15:53

that should have said.... thanks again!

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