Self Employed? 4 Tips to Get Approved for a Mortgage

a2b21efd2a9f4513bb2b7161eaf29574If you are self-employed, you may face a unique set of challenges when it comes to getting approved for a mortgage. With a potentially fluctuating yearly income working against strict home lending guidelines, you may find yourself having to jump through a few hoops during the home buying process. And while that certainly doesn’t mean that homeownership is out of reach for the ranks of Americans that work for themselves, it does mean that you should take the time to prepare yourself and your finances before seeking approval.

Covering some financial basics can help you get approved for loans when you are self-employed

The most important thing you can do in the time period leading up to your home purchase is to be fiscally prudent in every area of your finances. This means making payments on time, maintaining a balance in your savings account and keeping good records of both income and expenses. Doing so can help you get approved for potentially lower mortgage rates than you would otherwise.

  1. Follow credit tips for raising and/or improving your credit score. This means taking steps to pay off existing debt, managing your monthly cash flow, and keeping balances low. A positive credit history can lower your perceived risk as a borrower and increase the odds that a bank will take you on as a mortgage customer and offer you competitive mortgage rates when you are self-employed.
  1. Keep outstanding records of both income and expenses. Your word will not be enough to give a mortgage lender the confidence needed to approve a mortgage loan for you when you are self-employed. Keep detailed records and make sure your numbers are accurately and honestly reflected in your annual tax return. You do not want confusion when it comes time for mortgage approval. Mortgage rates can be impacted by not only your credit history, but by your income as well.
  1. Don’t overspend and drain the balance of your savings account. In the same way that a positive credit history can impact your ability to get approved for a mortgage, lack of liquid cash can also hurt you. As much as possible, be frugal in the time period leading up to your home purchase.
  2. Get pre-approved for your loan. A mortgage pre-approval can help you set realistic expectations as to how much home you can afford. By getting pre-approved you can find out if you are up against any particular challenges before you find the home of your dreams. If time is on your side, you can then work to eliminate or reduce the impact of the financial imperfections from your past.

Be Prepared. Get pre-approved for your mortgage early.

If you are self-employed and looking to secure a mortgage loan, you should consider starting the process well ahead of time. Compare mortgage lenders and choose one that will help you find a mortgage solution that caters to your unique borrowing needs. Then take the time to apply for mortgage pre-approval. Knowing in advance wither or not you can get approval will give you time to make any necessary adjustments to your financial circumstances. Adjustments including improving your credit score or decreasing your debt may be necessary to minimize your perceived risk as a borrower. And, if for some reason you find out you cannot get approval on your own, preparing in advance will give you time to seek out a co-borrower or make additional financial plans.

Sponsored content was created and provided by RBS Citizens Financial Group.

How to Choose the Right Insurance For Your Business

business insuranceThe right insurance is essential when you’re running a business, and particularly so if you’re legally required to have certain cover. The type of insurance that you need, however, will vary depending on the business you run and how much risk you’re willing to bear.  

Legal Requirements

Employer’s Liability Insurance Cover. If you are big enough to employ others, then you have to have insurance to protect both you and them. It has to be worth at least £5 million for most businesses.

Motor Insurance. Your business has to have motor insurance if you use vehicles for business purposes, deliveries, for example.

Professional Indemnity Insurance. If you offer advice or consultation, then professional indemnity insurance will mean that you are protected against the possibility that your advice will cause your client to lose out financially. Awards for damages can be high, so you need to consider whether your business is at risk.

Finding an Insurance Adviser

There are two main types of advisers, an insurance broker and an independent financial adviser.

Insurance Broker. They represent a range of different insurance companies, and will be paid through commission. This means that they will help you compare a variety of insurance policies, as they have a good knowledge of the market, but it is likely that they will steer you towards a company from which they’ll get commission.

Independent Financial Advisers. They operate much in the same way as brokers, but they are often smaller companies. You usually pay a fee.

 Honesty is really important when dealing with insurers. Withholding information or providing false information can invalidate your claim, meaning that you won’t get the money you need.

Insuring Your Business Premises

Taking out insurance for your premises, whether it’s a shop or a café, needs to cover you for damage from a variety of causes, including

  •  fire and lightning
  • malicious damage
  • storms
  • floods
  • explosion

Contents Insurance

Premises insurance only covers the physical building, so you need contents insurance to protect everything inside, i.e. stock or machinery. Business interruption insurance will protect you from loss of profit and similar events.

You may need specialist insurance for your particular type of business. One Sure Insurance for example, offers all sorts of insurance, ranging from tattoo parlours to pet shops.

Your Employees

You should already have employer’s indemnity insurance, but you may want to consider offering health or life insurance as a benefit for your employees. It could be a major attraction for any potential employees.

Guide to Business Loans: How to Prepare and Get Approved

business loansChoosing the right business loan is leverage to grow your company in a time and cost efficient way.

Many entrepreneurs lack the liquidity to pounce on time sensitive opportunities, such as acquisitions or bulk supplier discounts. A business line of credit is readily available capital to earn money or cut costs, in these ways. A well-capitalized business can also meet payroll if invoices go unpaid or emergencies arise.

There are many financing choices to meet short or long term borrowing needs. The business loan process is more efficient with basic preparation. This includes taking a lender’s perspective on what strengths and shortfalls your business may have.

Here is a checklist of what to prepare and anticipate.

2 years of Business and Personal Tax Returns

Banks prefer an established history of results. Two years of personal and business tax returns give lenders a snapshot of how your business is trending. If you own a start-up or new business strong personal credit and extensive collateral may be essential.

Best Practices:

Lenders primarily use numbers to determine your capacity to repay. Net income, debt and credit score are closely evaluated. Loan underwriters should ideally ‘connect the dots’ to explain discrepancies.

However, high volume and limited authority may cause some aspects of your application to be overlooked. Some best practices to improve your odds of approval include:

  • Determine if your business loan officer is also the underwriter. Many underwriters have leeway to make decisions on borderline applications.
  • Be sure to anticipate potential questions that your tax returns may raise. Interest and depreciation expense are write-offs that lower net income. Noting this may address an underwriter’s concerns about profitability.
  • Did your company have a one-time charge off or loss that deflated numbers? A busy underwriter may overlook this when reviewing your loan package. You should be aware of what factors positively and negatively affected performance. This could help you influence loan decisions.

Tip: Be prepared with alternatives based on your needs. You may use strong personal credit for a business credit card. Specific purpose loans offer easier qualifying. Examples include equipment loans and restaurant or nightclub financing offered by online lenders like BusinessLoansDirect.com.

Bank Statements for past 6 months to 1 year

Loan officers prefer ‘seasoned’ bank balances. This ferrets out borrowers who have short term infusions of cash from friends or family to improve their financials.

Tip:  Anticipate and prepare for questions on spikes or dips in balances. A rational answer to a large influx of cash a month earlier will be helpful. Perhaps a large A/R was paid or you just acquired a lucrative client. You should have documentation of this ready, if needed.

Current Income Statement

Income statements are a summary of how your company is currently performing. Business dynamics frequently change. Companies may have lost large clients or market advantage since their most recent tax returns.

Tip: Prepare the most recent income statement possible, even if not favorable. Why? Lenders will recognize attempts to provide outdated information. Providing incomplete data only delays the decision and your chance to pursue alternatives.

Balance Sheet

How your assets and liabilities are comprised is important. Can your business quickly turn assets into cash?  Are your liabilities short or long term? A balance sheet gives details of your business finances.

Tip: Your balance sheet also gives insight into the best loan options. For example, if you have high accounts receivable, A/R financing may be an option for short term cash. Fully depreciated and outdated machines may be incentive for equipment financing. You can increase productivity and have possible tax write offs with new equipment loans.

Business and Personal Credit Checks

Your payment history under a business tax id and/or social security number will be checked.

Tip: Minimize surprises by knowing what is on your credit reports in advance.

No credit business loans meet short term needs until credit is established. Examples of financing that require no or minimal credit includes:

  • Merchant Loans
  • A/R Factoring
  • Niche Industry Financing
  • Equipment Lending

Conclusion

To improve your chances of getting approved for a business loan you need to thoroughly prepare. Ask what type of documents you need before applying for a loan.

Preparing financials for a business loan has other benefits, too. You also gain perspective on making more informed decisions.

Photo Credit: anankkml

Review: Waveapps.com

Waveapps.com is an online financial service aiming at small businesses with 10 or less employees. It promised seamless cross-platform features for the business owners on the go. However, under careful scrutiny, a lot of the features fell short of the promised usability.

My first impression of wave was not positive due to the design choices of using picture icons instead of words for different sections and to have a vertical menu on the left hand side of the screen. From top to bottom, the icons are for Dashboard, Transactions, Invoices, Bills, Receipts, Accounting, Reports, and Payrolls.

I was rather lost when I first logged on. I was not sure where to start and what to click on. Even after I finished reviewing the website, I still could not remember which section was which just by looking at the little pictures. In addition to that, I found myself constantly having to drag my mouse cursor a long way across the screen to the left to access the menu. This was the reason that most websites and software mainly used horizontal menus at the top of the page.

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The second pet peeve I had was that the dashboard not only did not easily fit on one screen, but also required significant scrolling. The dashboard was split into two even windows: recent activities and financial snapshot. Since financial snapshot included four groups of information, “Income and Expenses”, “Payable and Owing”, “Net Income”, and “Business Expenses”, it occupied significant more screen area. The result was such a long dashboard that it defeated the main purpose of giving users a quick glance of their status.

 

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The third annoyance I had while using the website was a small but very intrusive window which kept popping up on the lower right hand corner of the screen. It was asking for customer feedback and there was no way to turn it off.  However, as I was writing this and needed to take a screenshot, it was nowhere to be found.

The key features of Wave included transaction records, invoice, bills, and receipts. Transactions could be added individually or in bulk by connecting to bank accounts or uploading a bank statement. Once I clicked on the “Add bank account” button, Wave presented me with the security employed to keep my banking information and my money secured. This is the fifth online bookkeeping services I had reviewed and they were only the second website out of five that actually included such information and assurance.

 

 waveapps.com dashboard

The transactions could be in US dollar as well as a wide range of other currencies. They could be transferred to different accounts and merged from existing transactions.

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 The “Invoices” and “Bills“ sections were self-explanatory and easy to use. My favorite features were the two boxes at the bottom corners of both pages: one on the lower left corner to choose how many lines to display per page and one on the lower right corner to jump directly to a certain page. This made the lists more fluid and faster to navigate as they would grow longer with time.

 

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Wave also included advanced features such as Accounting, Reports, and Payrolls which I did not test due to the limited time and data I had.

There were multiple ways to file receipts on Wave. From the website, I could upload a picture file of the receipt. There were also iOS and Android apps available for filing receipts on-the-go, and an email address to forward the receipts that I had lying around in my email inbox. This was the most elaborate system of receipt filing I had have encountered and I had high hope for it but it did not work very well. I snapped a picture of a receipt from the iPhone app. The picture was synced to the website fairly quickly but the processing was completely wrong as shown below.

 

 wave app review 8

 

While the receipt filing system was an interesting extra feature, the lack of a dedicated page for contact list management and list of products and services was puzzling. Contacts (customers and vendors) could be added as I added the expenses and payments. Items (products and services) could be added as invoices were created. However, no master list was from such information. No option to import or export the list. Wave was the only bookkeeping service that had chosen to leave these out and I thought that was either a huge oversight or a very unfortunate design choice.

Last but not least, wave accounting app was free to use. There were charges for added on services such as payroll or accepting credit cards payment on invoices. Otherwise, it was not clear how the company made money while providing the service. This made me uncomfortable as I was not sure whether I was trading my information for the free service I was getting, or whether the company was trying to get me to use it before rolling out a paying model that I would not like in the future. Wave was one of two out of the six websites that I reviewed that had this business model.

In summary, while Wave was a free service with a reasonable list of features and decent usability, I did not think it would be my online financial service of choice.

Have you ever tried waveapps.com?

Check out what we think of other small business accounting services.

Review: Quickbooks Online

QuickBooks Online was Intuit’s low cost answer to the growing market of online book-keeping services for small businesses. For a monthly subscription fee, it contained the accounting features that a small business owner would need such as transactions reconciling, creating and issuing invoices, and creating checks, etc…

QuickBooks Online (QBO) products for small businesses included three tiers of membership: Simple Start for $12.95/month, Essentials for $26.95/month, and Plus for $39.95/month. This was about the same pricing as other online book-keeping services that I tried out. Since all other services that I used had the option for multiple users, I picked the QBO Essentials for the best comparison.

 quickbooks online

Even though the promise was to “try it free for 30 days”, I seemed to be heavily pushed not only to commit to the original paid service but also to add on extra features, much more than what I was used to from all the other trials by other online book-keeping services.

There was a green top headline with the countdown clock for the number of days I had left in the trial. It was there no matter where I navigated and there was no way to close it. Then there was a pop-up window that appeared every time I went back to the home page, to give me the 50% off rate for the first six month.

In addition to that, everywhere I turned inside the website all the features would cost me extra. Payroll was another $39/month. Time tracking for my employees would be another $39.95/month. Wanted to save time and printed checks from QBO? That would cost extra too. Even though I understood that Intuit was a well-known name in the book-keeping business with a large library of sophisticated tools available, I felt like whatever I would pay would not be enough.

 quickbooks review

 online bookkeeping

The websites consisted of eight sections; each of these sections in turn would have sub-folders as well:

  • Home
  • Company
  • Customers
  • Vendors
  • Employee
  • Banking
  • Reports
  • App Center

Unlike other book-keeping services, the Home page did not give users a quick glance of the company financial status.  It had a to-do list, a Messages center, and quick links to what it deemed as popular actions: create an invoice, create a sale receipt, enter a bill, and write a check.

 qb 4

While the Getting Started tab showed users a few training videos and guides, I was much more interested in the chart on the Getting Around tab. It showed what QBO tracked and how all the features were related to each other. All the icons were clickable to bring users to the features. I wish this was on the home page as it was the most helpful training materials I have found for all the online book-keeping services.

 qb5

The Company section contained information about the company and how to monitor, import, and export data, such as contact information, chart of accounts, sale tax, additional user information, and products and services list. Not everything listed was actually usable. When I clicked on “Create Budgets”, I got an invitation to upgrade to Plus (the next higher tier of membership) to use that feature.

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It was when I encountered a long sub-menu under Company that I realized the value of the “Rearrange Menu” option. It was available for every sub-menu on the website and it allowed me to choose the order and grouping of the available features, especially when not all of them could be visible on the horizontal sub-menu bar.

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The remaining sections were fairly standard. Customers and vendors were where the majority of monetary transactions going in and out would be recorded. Employees section had options to set up payroll (for an extra fee) and time-track (for another extra fee).

Banking contained information of various accounts. Under Reports, there were a number of reports and score cards that could be generated. App Center had a list of add-ons, from both Intuit and online third party developers. The website was responsive and everything worked as intended.

In summary, Intuit’s QuickBooks Online Essentials was a good choice for an online book-keeping service with a decent list of features and fairly ease of use. With the name recognition that they had, I was the most comfortable with giving them my financial information compared to other new players.

However, the constant push for additional functions instead of highlighting the available ones could quickly become a turn-off to customers and did a disservice to a solid piece of software that it was.

Have you ever used QuickBooks Online? What are your thoughts on it?