If you earn a living as a freelancer, or you work for yourself in some other capacity, then you might face a downside when you come to borrow money: it’s a great deal harder to demonstrate how much money you earn.
You might lack the stability that comes with a salaried income – and you’ll often need to spend time actually earning money and declaring it before a lender will accept the level of risk that you pose.
If you’re in this position, it’s worth doing everything possible to persuade the would-be lender of your creditworthiness. So, what measures might we take?
Get your paperwork in order
Without the proper documentation, your case will be extremely flimsy. Assemble all of the relevant paperwork. The most powerful of these will be tax-year overviews and SA302 tax calculations. The latter will provide a four-year overview of your earnings, and the tax you’ve declared on them. This will tend to be viewed as more reliable than a one-time snapshot of your affairs, like a bank statement.
Explain income patterns, not just totals
You’ll want to be able to demonstrate not just that you’ve earned a specific amount over a given period, but that you’re able to do so consistently. Any retainers you’ve earned, along with specific dips and troughs brought about by seasonality, will allow you to indicate exactly where the risk lies. Your income might be expected to ebb and flow – but when this happens in accordance with a specific, predictable pattern, you’ll often find it easier to reassure the lender.
Manage expenses for clarity
The more easily you can make sense of your expenses, the easier you’ll find it to get through the affordability checks. Get into the habit of tracking every expense digitally, and ensure that everything is neatly categorised. This can be especially helpful when you’re applying for self-employed loans.
Time your application
If you know that you’ve had a strong quarter, then try to time your application accordingly. This will present you in the most favourable possible light. For the same reason, you might wait until your accounts have just been signed off.
Plan for contingencies
There’s a chance that not everything will go to plan over the course of your loan. Make sure that you make arrangements to deal with any bumps in the road. You might save up an emergency fund that will help to keep you afloat in the event that your income dries up. Insurance, for certain professionals, can also be invaluable. If you’re earning a living as a freelance photographer, for example, you might take insurance out on your equipment.