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Creating solutions for the self-employed

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Annie Kane 10 minute read

With the coronavirus pandemic causing an uplift in Australians looking to move to the regions and start that business they’ve always dreamed of, more borrowers are becoming self-employed for the first time. In this sector report, partnered by RedZed, Annie Kane takes a look at how brokers can service this growing sector

It’s been a tumultuous couple of years, but as the country shifts strategy from elimination to “living with COVID” and settles into a new way of working, it seems that many Australians are also changing tack to live their best life.

Whether it is finally buying their own home (as reflected in record levels of mortgages this past year), moving to the regions to make better use of the work/life balance, or establishing their dream businesses for the first time, people across the nation are busy creating the life, and business, they want to lead.

The shift in appetites from wanting big corporate jobs in the cities to being self-employed in the regions can be seen in the stats. According to the Regional Australia Institute (RAI), the number of capital city residents moving to regional areas rose 2 per cent during the September 2021 quarter, and 3 per cent from a year earlier. Overall, regional net migration jumped 14 per cent during the September 2021 quarter.

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Once in the regions, many are starting their own businesses, or running their businesses from afar. The Australian Bureau of Statistics has found that there are a growing number of owner-managers (self-employed people) in Australia. Indeed, between July and August last year alone, the number of self-employed people, most of whom are sole traders, increased by 50,200. By February 2021, approximately 11 per cent of Australia’s workforce (around 1.4 million people) were operating as self-employed sole traders, according to the World Bank.

Adrian Fisher, national sales manager at self-employed lender RedZed Lending Solutions (RedZed), says he expects that more Australians will become self-employed in the coming year, too.

“We’re absolutely expecting to see a rise in the amount of people becoming self-employed as more people choose to live their dreams,” he tells The Adviser.

“We already saw a rise before COVID, with more people looking at self-starter or gig-economy offerings. We absolutely strongly believe that there will be a significant increase in self-employed numbers next year and beyond.”

He added that as Australia moves towards greater freedoms, more people will shift gears in the coming year as “The Great Resignation” wave continues across the globe and hits Australian shores.

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With more self-employed borrowers expected to set up shop, there is therefore more opportunity for brokers to help support this segment of the market – and get to know the lenders that will be able to service them.

Given the expected influx of new self-employed Australians, ensuring that these borrowers are able to still access finance will be key; especially for those moving from traditional PAYG roles to being self-employed for the first time, who might find that their bank might not have many options for them.

And, Mr Fisher suggests, there will likely be more demand for products that offer more stability and security. He explains: “I think what this pandemic has shown borrowers now is to look for longer-term, more stable facilities with lower rates that actually give them a bit of breathing space.

“Plus, the fact that the property market has been so buoyant, this has enabled self-employed people to tap into the equity of that property and get themselves ready – replacing stock, hiring staff etc - for the busy summer period.

“Nearly every loan we’re seeing at the moment is people borrowing a little bit more than their current need, to give themselves that breathing space in case something happens again.”

Moreover, given that many self-employed people in NSW and Victoria may have closed their doors for several months during the lockdown periods this year, it will be important for these borrowers to apply to lenders that are able to “look at their income in a different way than the traditional means”.

Mr Fisher explains: “For these borrowers, they may have typically gone to a bank using standard, two-year sets of financials. But those types of financials might not be able to support their loan application now, because what they will show is periods where they had no income, or very little income. They’re not going to be able to show the level of income that they had previously, because there [are] going to be periods of lockdown.

“So, I think those borrowers are now getting really concerned, wondering how their bank will assess them when FY21 and FY22 might only show they’ve been trading for six months of it. That’s the opportunity for a broker to show that there are other opportunities, other lenders who will look at these differently.

“For example, we can use a combination of 12-month financials, which may only reflect six months of operating, with recent Business Activity Statements to establish a more accurate picture of the business performance over the most recent 12 month trading period. Or, if they changed their business during lockdowns and made more money, to understand whether the spike was just because of COVID or whether it is actually sustainable over the long term. Our rates start at 2.24 per cent (or 3.09 per cent for alt doc) and in some cases we might have lower rates than the bank, so it’s about letting self-employed borrowers know they have options outside the mainstream lenders, that are very competitive and willing to assist.”

Top tips for writing self-employed loans

from Adrian Fisher, national sales manager, RedZed

  • "Make sure that the self-employed client’s accountant is part of the decision-making process for the borrower. The accountant can provide some really good insights into what COVID has done to the business and how they traded. While the client can go through what they’ve done, the accountant will give you the evidence you need to demonstrate that."
  • "Don’t think that just because a self-employed client’s financials are not as strong as they have been historically – for example, if they received government stimulus support – that this means they can’t access finance options. There are other options out there than major lenders for self-employed borrowers."
  • "Lending to self-employed borrowers is going to be a growth sector for the next couple of years so I would advise brokers spend time educating themselves on what options are out there for self-employed and looking at policies.  Because if you’re across all the solutions available to them – and able to help remove the angst and pain for the self-employed borrower and find them a solution – that borrower is going to be a client for life."
  • "Make sure you’re leaning on support teams to discuss scenarios. I’d estimate that about 60 per cent of the applications that hit our desks are deals that our BDMs already know about, because they’ve already been workshopping them with brokers to help them make sure there is a suitable and viable solution."

 

Partner Message

As we celebrate our 15th anniversary, RedZed continues to be passionate about the self-employed.

Why?

We are self-employed.

Our borrowers are self-employed.

The majority of our brokers are self-employed.

Our business was founded by people who have faced the same challenges that all small to medium business owners face everyday. That experience has played an important part in the design and continued development of our organisation.

By targeting the self-employed segment, we also avoid the challenges that come with the broader, more traditional, high-volume lending space, which can often result in inflexible, automated and delayed customer outcomes.

Since 2006, we have received a consistent message from our customers. You want simple products, common-sense decision-making, and an outstanding customer experience.

That is what the team members at RedZed strive to deliver everyday.

RedZed – 15 years enabling the ambitions of the self-employed.

 

Creating solutions for the self-employed
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Annie Kane

Annie Kane

Annie Kane is the editor of The Adviser and Mortgage Business.

As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts. 

Email Annie at: This email address is being protected from spambots. You need JavaScript enabled to view it.

 

 

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