A profitable business should make buying property easier. So why are some business owners surprised when they apply for finance?
One of the great ironies of business ownership is that many successful business owners spend years making smart financial decisions, only to discover those same decisions can make buying property more complicated than they expected.
Working with your accountant to legally minimise tax, reinvesting profits back into the business and building long-term value are all sensible business decisions. They are also signs of a well-managed business.
Yet when the time comes to apply for a home or investment property loan, those same decisions can sometimes reduce the number of lenders willing to assist, or the amount they are prepared to lend.
It’s easy to conclude that “the bank doesn’t understand my business”, but more often, it’s because your accountant and your lender are looking at your business through completely different lenses.
Two Professionals. Two Different Objectives.
A good accountant is focused on helping your business operate efficiently.
They’ll help you structure your affairs appropriately, claim legitimate tax deductions, protect your personal assets and build a stronger business over the long term.
A lender has a different objective. They’re trying to answer one question:
Based on the information available today, can this borrower comfortably repay this loan over many years?
Those two objectives don’t always produce the same outcome.
A strategy that is entirely appropriate from a tax perspective may not present your financial position in the strongest possible light from a lender’s perspective.
Neither approach is right or wrong. They’re simply designed to achieve different outcomes.
Your Business May Be Stronger Than Your Financial Statements Suggest.
One of the biggest misconceptions we encounter is the belief that lenders simply look at profit.
If your business made a healthy profit last year, surely obtaining finance should be straightforward?
In reality, assessing a business owner is rarely that simple.
Lenders are trying to understand the sustainability of your income, not just the profit reported in your financial statements.
Depending on your circumstances, they may consider:
- How you choose to remunerate yourself.
- Whether profits have been retained within the business.
- One-off income or expenses that affected last year’s results.
- Depreciation and other non-cash accounting adjustments.
- Existing business borrowings and commitments.
- The consistency of your income over recent years.
- Whether your business operates through a company, trust or another structure.
Each of these factors helps build a picture of your financial position.
Unfortunately, many business owners have spent years making sensible commercial decisions without realising those same decisions may influence how a lender assesses their application.
The Right Lender Doesn’t Just Matter. It Can Change the Outcome.
Many people assume there is a single way to assess a business owner. There isn’t.
Every lender has its own credit policy, its own appetite for different industries and its own methodology for assessing self-employed applicants.
Some lenders have a much deeper understanding of business ownership than others. They may assess retained profits, trust distributions, director remuneration and legitimate one-off expenses differently. The financial statements and the business haven’t changed. Only the lender’s interpretation is different.
That is one of the reasons why business owners can receive very different outcomes from different lenders.
Choosing the right lender isn’t just about shopping for the lowest interest rate. It’s about finding a lender whose credit policy aligns with the way your business operates.
Timing Matters More Than Most Business Owners Realise.
Another common mistake is leaving finance until after the perfect property has been found.
By then, timeframes are tight, contracts have been signed and emotions are involved.
If unexpected questions or issues arise, there may be little opportunity to address them before finance approval is required.
A far better approach is to understand your position before you begin searching.
An early review allows you to:
- Understand how lenders are likely to assess your financial position.
- Identify any factors that could reduce your borrowing options.
- Consider which lenders are best suited to your circumstances.
- Discuss potential improvements with your accountant where appropriate.
- Enter the property market knowing your borrowing position with confidence.
Understanding your position early gives you time to make informed decisions before entering the market.
The important point is that you still have options.
Finance Should Support Good Business Decisions.
One of the themes we often discuss with business owners is that finance should support the decisions you’ve made to build your business, not penalise them.
Running a profitable business rarely follows a straight line. There are years when you invest heavily in equipment, retain profits to strengthen the balance sheet or reduce drawings to fund growth.
Those decisions make perfect commercial sense. The challenge is ensuring they’re understood in the right context when it’s time to borrow personally.
That’s where specialist advice becomes valuable, because it helps ensure your business is presented accurately to lenders that understand business owners.
Final Thoughts
Owning a successful business shouldn’t make buying property unnecessarily difficult.
The challenge is that business owners are assessed differently from PAYG employees and many don’t discover that until they’ve already found the property they want to buy.
For many business owners, the best outcome isn’t achieved by finding the right property first. It’s achieved by understanding their finance position first and then entering the market with confidence.
If you’ve spent years building a successful business, your finance strategy should reflect the strength of what you’ve built.
The best time to understand your borrowing position isn’t after you’ve signed a contract. It’s before you start looking.
