Aaron from Diagnostics and Finance explains how business loans and overdrafts affect your ability to get a mortgage. Business liabilities reduce the profit available to service personal loans, but some lenders exclude business expenses if the company trades profitably. Newer businesses can access alternative documentation loans, though these have strict criteria and higher costs.
Hey, it's Aaron from Diagnostics and Finance. Do your business loans and overdrafts that you operate your business affect your ability to borrow on your own home or for a new investment property? It's really great for self employed people to be investing once their business is stable and making a nice amount of money because then you actually have something to retire on as well. A couple of things with your business overdrafts and business loans is that they can play an impact onto your finances. A couple of reasons why. One is if you need the profit from your company to be able to service the loan, we need to then take into account what the liabilities are because we're actually using the profit that we would normally just keep in the business for running costs. If we're going to use interest expenses or depreciation within your financials, we need to declare why you're getting charged interest in the first place. So sometimes it balances itself out, sometimes it doesn't. And that's what we need to bring into the situation. If your company is trading profitably, there are a couple of lenders that if you're borrowing in your personal name, you'll be able to exclude your business expenses. You have to be trading profitably, but you need that dollar, you need that thousand, $10,000 of profit that you get and then you need to have the sizeable income to be able to afford the borrowing. Now that not necessarily is always the case. There are loans and options out for alternative documentation where you might be a new business six months in, you might be 24 months in, but you haven't done your latest financials. And there are some alternative documentation related to that. But in those cases there's some strict criteria on how the loan is structured out. Plus also they're going to charge you for the privilege of not sending all your documents in. So do your business loans affect your personal borrowing? Yes and no. Yes it does. When we need to use your profit and depreciation interest to get through the loan experience. And the other one is if you're trading profitably, we can look to exclude your business expenses. Hey, it's Aaron Diagnostic Finance and we'll talk soon.
