Picture the following scene in an Australian bank branch:
A self-employed tradie called Bob takes time out of his work day and goes into his local bank to ask about a loan. Despite being a customer for years, no one in there recognises him, because the longest tenure of anyone in the bank is ten months.
He is interested in buying a house he and his wife recently saw. The bank teller tells him that he must come back again later for an appointment with the Lending Manager. Bob returns later, taking another hour out of his day, to suit the bank’s schedule.
The bank manager greets Bob with a big smile and a fake laugh before they sit down to chat.
(Bank manager) Hello Bob. The computer tells me you are a self-employed small business owner?
(Bob) That’s right.
(Bank manager) Good on you mate. Self-employed people are the backbone of the Australian economy.
(Bob) So you can help me?
(Bank manager) Unfortunately mate, we don’t like backbones here in this bank.
(Bob) So you can’t help me?
(Bank manager) Of course we can, Bob. In fact, we’d love to help you. We’re all about love here. Just not in the “lending” sense… You understand?
(Bob) Mmmm… But I’ve been a customer here for nearly 20 years. I thought you might respect…
(Bank manager) Respect? (Laughing)… sorry mate, that’s a good one.
(Bob) So where do you think I can go?
(Bank manager) You don’t have to go anywhere, Bob! Can you come back in a year, when you don’t need the loan?
If this sounds familiar it’s because it happens every day of the week, and it’s neither new nor rare. Self-employed people hate banks because for them to get a loan requires twice as much work and twice as much proof as a PAYG worker.
As a PAYG worker you may require no more than one pay slip before being able to get a loan approved. A self-employed person needs to virtually prove that they don’t need the loan before they can come within a breath of qualifying.
Why is this?
Bank lending policy is all about managing risk. And risk is all about what might happen. Therefore a lender will look only at past performance as a guide to assessing Bob’s future ability to repay any loan.
This is a perfectly fine measure for PAYG employees, whereby a look at recent pay slips will more or less tell you everything you need to know about their earnings and future ability to repay a loan. Most PAYG employees’ circumstances don’t change so drastically either. Hence the risk can be fairly easily quantified. However, this mentality is where the self-employed are prejudiced against.
A Self-employed person can reasonably expect their business to grow and earnings to increase, or at very least remain stable; otherwise, what’s the point in working for yourself? But a bank will invariably only look backwards, i.e. at the last 2 years earnings, and most often decide to take only the lower of the two. Banks ignore temporary or external factors and simply quote “policy is policy” when queried. This is no better than parroting the “Computer Says No” reply. Instead of investing in flexibility and human decision making that can assess a business on its merits, banks too frequently spend this money on advertising about how they “will always be there for you” …. That is of course until you actually need them.
This disdain for the small business person has unfortunately also crept into the broker space. I have too often heard “I only deal with PAYG professionals” from fellow brokers. It’s about time this nonsense stopped from all players. Going for quick-wins (preferences for high-salaried PAYG employees) ignores the massive future potential and loyalty that small business owners can bring to your own business, as a broker or a direct lender.
Each one of these small businesses was started because their owners wanted to do either something new or something better. Each one of these risk-takers will also tell you about the value of long-term business relationships. It is from the strength of these relationships that their businesses thrive and grow to be bigger and better. Isn’t it time that banks and brokers adopted the same attitude when dealing with the self-employed?
To talk to a broker who appreciates you, who is experienced in this sector and works on behalf of the self-employed, call +61 7 5456 2928 or email [email protected].
