Business for self & Rapid growth
Business-for-self - or BFS - includes a diverse group of business owners, sole proprietors, partnerships, and other self-employed people. They can often find it frustrating to get a mortgage, with income qualification in particular being a hurdle. In our BFS spotlight, we've dug into some of the challenges past BFS clients have faced, and how we were able to help them. You can find the table of contents here.
In this article, our client has an issue that is normally quite desirable: her business is facing dramatic growth over a short time. But mortgage lenders prefer stability and predictability, and they want to know how the business went from "0 to 100 kph" so quickly…
Situation: Tham* runs an online-based business, selling collectibles & gaming products. She's been in the industry for a long time - buying and selling at flea markets as a teenager, and then shifting to online sales in the last few years.
In the past, it was a pretty modest venture, and as a sole proprietor she declared $10-20K per year of net business income on her personal tax returns. And then 2020 came along…
A combination of building great customer relationships, and a captive audience (all those people stuck at home due to COVID-19!) has led the business to grow almost 10 times! Now she's earning over $10K per month, and is ready to buy a condo with her fiancé Min.
Challenges for BFS clients: At first glance, it's a slam dunk: high monthly income, they've saved 15% for their down payment, and they're looking to buy a modest 500 sq ft condo. No problem, right? Well, as a small business applicant, most lenders will have numerous caution flags go up:
Dramatic year-over-year income change: almost $250K in the current year vs $20K previously
Complicated banking transactions from selling through multiple sales channels (including Amazon, Kijiji, and direct)
Many direct sales conducted in cash with little to no formal record
No time yet to set up the systems that a more established business would normally have (a business bank account, financial software, detailed process to handle cash transactions, and so on)
In summary, it's a difficult story to tell, especially compared to a "traditional" business (trades-person, store owner, etc). So what can be done?
Solution: First, we worked closely with Tham to build a clear story. We needed lenders to understand and appreciate how her business works, and why the recent success is here to stay. This included detailing how her customer base has been growing over the years, and she has been getting more and more repeat business from loyal clients.
We also conducted detailed reviews of her transactions to untangle the complicated banking situation, and present them in a more logical manner. And we highlighted the sales coming through Amazon because they provide detailed monthly account statements to support Tham's story (not to mention, lenders "get" Amazon and how it works).
The end result was that we found a lender who properly understood their situation, and Tham and Min got the home they wanted and a mortgage at a great rate!
Whether you are self-employed or not, we give the same level of diligence, attention to detail and support to all of our clients. Contact us for a no-obligation review your mortgage and financing options, or Apply Now through the button at the top right of the page.
*Names and financial details have been modified as needed to protect privacy :)
