A business mortgage is a slightly different obligation than a regular mortgage. What conditions must be met for a bank to grant this type of loan? Does the type of business affect the company’s creditworthiness?
People who run their own business can apply for a mortgage. However, they must be fully aware that it is not so simple and involves not only difficulties, but also the need to devote a large amount of time. Application procedures are much more complicated for entrepreneurs than for individuals.
This is because banks trust clients more, guaranteeing stable employment and income. They are the most important factors determining creditworthiness. Entrepreneurs are not employed and do not have a stable income (income is different every month). So banks are often afraid to grant them mortgages. It is uncertain for them whether they will be able to pay back in installments.
Mortgage – conditions for obtaining by the company
An individual with employment, a stable income and a clean credit history is unlikely to have major problems getting a loan. Entrepreneurs will be much more difficult, but it is not impossible. However, banks have far more requirements for entrepreneurs that they must meet. An entrepreneur whose company has regular income has a better chance of receiving a mortgage.
Income of varying amounts may not be enough. In this situation, you need to try to prove to the bank that the company’s earnings have been repeatable for at least two or three years. If the information provided covers only a few months, the loan application will be immediately rejected.
Another of the most important factors determining the granting of a mortgage is the period of running a business. Most banks require a loan applicant to have been in business for a minimum of 12 months. Some banks require up to two years.
Form of taxation and time of loan granting
The method of accounting for your business has an impact on the timing of the mortgage. In the case of a customer settling operations on the basis of the revenue and expense ledger, the bank can quickly check its net income for the last year. However, when settling the company through a registered lump sum or tax card, the bank may have a big problem determining the current income of the company.
The calculation of the creditworthiness of a company settled on the basis of an recorded lump sum usually shows a lower amount than the actual one that the potential borrower has. In the case of a tax card, the bank is not able to find out in any way what income the owner of the business applying for a mortgage has.
Does the type of business affect creditworthiness?
The type of business also has an impact on creditworthiness. If a company belongs to one of the industries that are susceptible to economic fluctuations, this may negatively affect its creditworthiness. This does not mean that a company operating in this type of industry is deleted when it comes to mortgage.
The bank may grant a loan to such an entrepreneur. By imposing a higher amount of own contribution, a higher interest rate, and an obligation to present financial documents for a period longer than standard.
Suspension of business may prevent you from getting a loan?
When an entrepreneur suspends operations and wants to obtain a mortgage, they must submit financial documents containing information on the circumstances of this event to the bank. If he fails to do so, the bank may assume that the reason for the suspension was financial problems and reject the loan application.
If a seasonal company is suspended, there will be no problems obtaining a mortgage. All that is required is that the entrepreneur proves that he suspends his activity regularly from time to time and it is not related to financial problems.