Small business owners are often viewed as bad risks when it comes to mortgage finance, but a new study shows they are actually better risks than the average borrower.
The Experian study, which investigated the financial behaviour of 2,7m small business owners from April 2007 to April 2008, shows that fewer than three out of 100 business owners fell 90 or more days behind on their home loans during the period under review, compared to a delinquency rate of almost four in 100 among homeowners in general.
It also shows that the average homeowner is 1,5 times more likely to experience a severe mortgage delinquency of 90 days or more than the average business owner.
“This really puts paid to the notion that entrepreneurs and small business owners are worse risks than corporate employees,” says Dr Piet Botha, chairman of the Nationlink estate agency group, “and hopefully it will make the banks take a new look at self-employed borrowers, because their numbers are rising rapidly.”
Indeed, according to research done by economist Mike Schussler last year, one in six economically active people in SA is now self-employed. The government is also of the opinion that small and micro business will play a key role in the future of the economy and is trying to reduce tax and administrative burdens to improve the survival rate of such companies.
“At the moment,” Botha notes, “people who run small businesses generally have a harder time getting home loans than people who are employed by big companies, for reasons that don’t really seem to have anything to do with the National Credit Act. But the Experian survey shows that they are actually better at managing their finances and are consequently lower risk borrowers than others.”
The study also shows that small business owners who are forced to choose between their home and their business when times get tough will usually make the responsible choice to let the house go before they get into serious delinquency, and rather secure the business – their source of income – until things improve financially.”
Meanwhile, says Botha, small business owners applying for home finance should go well prepared to their mortgage originator with the following:
* Six months' bank statements
* A comprehensive income / expenditure statement; and
* The latest business and/ or personal financial statements as well as the management accounts for the current year, all attested by a qualified professional.
“And they should remember that lenders are always are more inclined to grant loans – and interest rate concessions - to those who come prepared to invest at least some money in their own properties in the form of a deposit."