This week I was sent an article from an insolvency practitioner and friend with the headline “Research Shows 60% of SMEs are Refused Loans”. You can read the full article here.
We also have a couple of home loan applicants that are quite well off who are struggling with either getting a loan approved or are being asked to repay their loans.
The exception to this rule is a category called low-doc loans – more on this later.
What all of these scenarios have in common is the current practice by banks to take away decision making until all of their compliance requirements have been satisfied. Box-ticking is the name usually given to this practice.
If this applies to you, you need to change to comply because the lenders aren’t about to.
When I look at an application form the requirements aren’t all that onerous or unrealistic. They are generally as follows (some lenders may have slight variations):
- Personal ID
- Two Pay slips or if you’re self employed two years of tax returns and financial statements for business loans
- A tax portal from your accountant saying you don’t owe any tax – this is required as the tax man gets to your money before the banks can in a worst case scenario.
- Current loan statements and/or bank account statements
- Copy of a contract of sale (if you’re buying a property)
- Copy of lease agreements if the property is an investment and is tenanted
- Copy of a Trust Deed if the borrower is a trust.
- Rate notice (if re-financing)
In certain circumstances more information may be required (for example, in construction loans you will need an accurate builder’s quote). These are box ticking items in the main.
For someone about to consider lending you 80% or more of your purchase price, it’s not too much to ask.
For most people this is not an onerous task. It’ll take an hour or so to bring together if all taxes are up to date. For others, this task is just too hard to contemplate. It becomes an exercise in excruciating anxiety.
If you know a good mortgage broker, they can help you put all of this information together.
Low-Doc Loans
These are usually used by self-employed people who – for whatever reason – don’t want to submit their tax returns to a lender. They will be required to get a statement from their accountant that states how much they earn and said amount must be enough to service the loan that they are seeking.
To ensure that you get a fair crack at approval ensure that all of the above box ticking items are provided. As to resist providing said box ticking items is an exercise in futility.