by Nick Tsimidis, Union Capital
Many lenders have tightened up lending criteria for self employed applicants. Lenders perceive increased risk of funding these files compared to clients who are employed. This is unfortunate; much of the wealth that has ever been created in the world is a result of the efforts of entrepreneurs and self employed. The segment includes a lot more people that you may think, including lawyers, architects, accountants, contractors, mortgage professionals and real estate investors.
From my experience, this perception is unwarranted. This demographic has the lending profile and growth prospects that brokers should focus on.
Here are some key traits that self employed exhibit:
- Growth focus - continuous search for business opportunities, investments and self improvement. Want to accumulate assets
- Risk/Reward - generally take risks and understand the concept of leverage
- Centres of Influence - leaders in their communities, have many contacts and are a great source for leads
- Value service – they understand that Cost is what you pay, and Value is what you get. They allow us to build trust.
To service this segment effectively, one needs to gain a deep understanding of the issues and business objectives of a business owner. There is a specific reason that they are self employed. It could be that they have specific knowledge of an industry, have specialized skills, are a professional or in a business that caters to self employment. Self employment and investments provide unlimited income potential. Employment does not.
- Entrepreneurs hate paperwork – they do not respond well to completing forms until they know you.
- Entrepreneurs have complex structures and objectives
- Their tax advisors often suggest strategies that result in optimal taxation for the family unit (not necessarily maximizing Line 150 of the Federal Tax Return)
- Business Holdings are intended to be complex for legal and asset loss prevention purposes (not easily explained into a box on an application)
A business owner has a more complex situation than someone who is employed. The more complex, the more funding and business opportunities that you will discover. Complexity brings forth the need for clarity, which is where the need for mortgage and finance professionals is required.
About the author
Nick S. Tsimidis, CPA CA, AMP, is the President and Principal Broker of Real Wealth Mortgage Corp. Nick focuses his practice on commercial and private mortgage lending and corporate finance, and can be reached at 289-371-3080 (email@example.com).
Although the information in this commentary has been obtained from sources believed to be reliable, Union Capital does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice. Union Capital will not be liable for any errors or omissions in this information nor for the availability of this information. All content provided in this article is for informational purposes only and should not be used to make buy or sell decisions for any type of lending products.
The following is a discussion is a conversation is about considerations of the "new lending rules" and how they apply to self employed individuals, such as the use of insured higher ratio mortgages:
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