Hyman says a range of changes this year including the Australian Prudential Regulatory Authority’s reassessment on how banks should assess borrowers’ ability to service loans had seen a spike of self-employed borrowers contacting Lendi in search of a mortgage.
Responsible lending conduct guidance released by the Australian Securities and Investments Commission this month also clarifies issues like how to include gig economy wages when assessing income, which Lendi sees as a win for entrepreneurs.
“The changes that have been made by the regulators are starting to get credit flowing again,” Hyman says.
This comes at a time where challenger digital home loan lenders and startups are flooding the market, looking to connect with first time borrowers and entrepreneurs.
However, Hyman points out traditional banks may have a better opportunity to capitalise on this appetite than newer lenders, because startups often face tough lending requirements that the big banks don’t.
“One of the fundamental issues a lot of the new players have is that being a new player and accessing the wholesale credit market, the biggest challenge they have is establishing themselves as a trusted issuer of wholesale credit. They have to conform around risk,” he says.
“It leaves a wide open hole for the more established players to start innovating on products.”
The big four banks all offer home loan products to business owners providing they meet extra eligibility requirements, including the borrower’s most recent tax assessments, business accounts and reports from their financial professionals.
ANZ has a specific ‘Lo Doc’ option for the self-employed that lets users borrow up to 60 per cent of the value of the property.
Then there are the challenger home loan providers on the market, and while some have been investigating the entrepreneur niche, not all can cater to business owners.
Tic:toc home loans is one digital lender offering rates as low as 2.79 per cent and a specific option for the self-employed.
Chief customer officer Faith Brockhoff said the low interest rate environment was piquing the interest of self-employed buyers, who have a keen interest in searching for the best deal.
“We know that entrepreneurial type people are really looking to do things for themselves,” she said.
“These customers are really savvy now — and they’re going onto comparison sites.”
Tic:toc’s home loans are made through partnerships with Bendigo and Adelaide Bank and La Trobe Financial.
The biggest thing really is having clear separation of what is business and what is personal.
Its Co:Lab offer is designed especially for businesses but being a new entrepreneur will cost you: a borrower in business less than two years will pay an interest rate of 4.99 per cent.
Brockhoff says one in ten borrowers that have signed up for loans in Tic:toc’s $500 million loan book are self-employed.
There are a number of other challenger lenders in the Australian market, including Athena, which raised a $70 million series C round earlier this year.
Athena did not respond for comment on the interest it has received from self-employed borrowers. According to its website, only self-employed sole traders with more than two years of experience in law, finance, medicine or IT are eligible for its loans.
Fellow digital lender 86 400 did not respond for requests for comment. It only issues loans through mortgage brokers.
Hyman says that having reviewed data on thousands of loan applications, the biggest challenge for entrepreneur borrowers is most likely getting their accounts in order.
Too many entrepreneurs still mix their business and personal accounts on a day-to-day basis, which makes it difficult for lenders to assess their spending and risk when looking at applications, he says.
“Regardless of what the regulators do, the biggest thing really is having clear separation of what is business and what is personal. For people to pay themselves a wage and run their business expenses separately. It’s going to expand the number of lenders willing to lend to them.”
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Emma is the small business reporter for The Age and Sydney Morning Herald based in Melbourne.