Self-employed declined by the bank

The scenario

The borrower is self-employed, either in the first two years of a new business, or with income evidence that does not match the bank's standard verification model. The underlying trading is real and supportable. The security is strong. The bank serviceability calculator returns a fail and the file is declined.

Why the bank cannot solve it

Bank serviceability assessment runs on documented, verifiable income that meets the bank's standard policy. Recently self-employed borrowers do not have the audited two-year track record the policy requires. The file does not get to a credit officer who can read the actual business; it fails at the calculator stage.

How a private lender approaches the file

The credit team reads the business. Recent BAS lodgements show what GST-bearing turnover the business is doing. Management accounts and bank statements show the actual cashflow position. An accountant's letter or context-setting note from the broker fills in the qualitative picture. The credit decision is made on commercial reality, not on whether the file fits a bank calculator.

Indicative file structure

• Security: registered first or second mortgage over the property.
• Term: sized to the bank refinance pathway plus buffer.
• Interest: capitalised or serviced depending on documented cashflow.
• Exit: refinance to a bank once the two-year financials accumulate, or sale of an asset.

What credit will ask for

• Recent BAS lodgements (typically four quarters).
• Management accounts and bank statements.
• Accountant's letter confirming trading position.
• Standard identification and security documents.
• Refinance pathway: what the file will need to look like to qualify for the bank, and the expected timeline.

Key risks

The dominant risk is the bank refinance not landing on the expected timeline. The credit team underwrites a realistic refinance pathway and structures the term with buffer. A borrower planning a short-dated facility on the assumption of fast bank refinance should test that assumption carefully. Property-secured lending carries the risk of loss of the security on default.

Frequently asked

• Why do banks decline self-employed borrowers?
  Bank serviceability calculators require audited financials (typically two years) to verify income. A self-employed borrower in the first two years of trading, or with non-standard income evidence, fails the bank's income test, regardless of how strong the underlying trading actually is.
• What does a private lender accept instead of two years of financials?
  Commercial reality: recent BAS lodgements, management accounts, bank statements showing cashflow, accountant's letter confirming trading position, or a combination. The credit team underwrites the actual business activity rather than running a templated serviceability formula.
• Is this just low-doc lending?
  It is closer to alt-doc than no-doc. The credit team needs evidence sufficient to underwrite the file; the documentation set is different from a bank's standard pack, not absent. Files with no documentation at all are not workable.
• Does the loan need to be business-purpose?
  Most private lending in this space is business or investment purpose. Files used for personal or domestic purposes fall under the NCCP consumer credit regime and have separate requirements; not the focus of this product category.
• What is the typical exit?
  Refinance to a bank once two years of clean financials accumulate and the file fits standard policy. Sale of the security or another asset is the alternative. The credit team underwrites the exit at submission.