Mortgage and business 2020 – what is my credit standing when running a business?

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Company loans are the most common source of business financing, however, business owners also incur such obligations for private purposes. An example would be a mortgage for companies. It is worth knowing that not every industry will be scored the same when it comes to so-called credit scoring.

There are those that may be rated worse due to the higher business risk. A housing loan for a company is less likely to be obtained by entrepreneurs who work in the transport, insurance, tourism and construction industries.

What’s more, the same principle applies to people engaged in gastronomy or financial intermediation.

However, this does not mean that in this case, the entrepreneur’s mortgage will be impossible to obtain. Certainly, however, a larger own contribution or buying additional insurance will be helpful.

Lump-sum and mortgage

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Yet another rule applies to entrepreneurs who settle on a lump sum basis. Mortgage and a lump sum are governed by completely different laws. It is worth knowing that examination of the applicant’s income is the basis for calculating the bank’s creditworthiness. In the case of an entrepreneur’s lump-sum tax they pay on income.

Bank analysts treat the earnings of these types of companies as a percentage of revenue. In practice, it may turn out that, according to their calculations, it turns out that the income of a company that settles on a flat-rate basis will be treated as 25% of its revenues.

The problem is also a mortgage and a flat-rate of 5.5% because then the entrepreneur’s creditworthiness can be recognized on the basis of 20% of the company’s income.

This is not good news for an entrepreneur, because such a calculation will significantly reduce his creditworthiness. Registered lump sum and mortgage loan is not a good relationship. It should be mentioned that a cash loan on a lump sum is still different.

Mortgage loan for a one-person company

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A single-person mortgage loan is subject to numerous restrictions. However, they are not fundamentally different from those that will be experienced by entrepreneurs running a company in which other employees are also employed.

Mortgage loans for people running a sole proprietorship are increasingly being granted. The requirement, however, is a certain time of running the company, which we will talk about later.

Creditworthiness and business activity

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What is the creditworthiness of doing business? To start with, it is important to remember what creditworthiness is all about. It is nothing more than the ability to repay the entire financial liability, together with its additional costs, within the period specified in the loan agreement.

Each bank, regardless of whether it grants credit to a natural person or a company, carefully analyzes the creditworthiness of its client each time. Credit analysis is used to assess creditworthiness. Banks have a completely different approach to credit analysis for companies that apply for funding.

The key factors to assess the creditworthiness of an enterprise are its assets (most often referred to as assets), capital structure, financing sources of operations, as well as the number of revenues and costs of its operations.

When applying credit analysis of enterprises, the bank may also take into account the company’s competitiveness, as well as the qualifications of the management and the crew.

The company’s creditworthiness is also influenced by selected environmental factors, independent of the company itself.

What mistakes should be avoided so that you don’t have a problem getting a mortgage on your business?

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Creditworthiness can be improved but also worsened, which is especially true for entrepreneurs. What should you avoid? For sure it will be showing no income in the business.

In this case, the net income is determined according to the formula: income = income (minus) costs (minus) of the GFI premium (minus) tax due.

Also, do not indicate losses in individual months of economic activity, which is common, as entrepreneurs try to pay the lowest taxes. It is also better to avoid suspending operations, the bank will treat it as closing the company. Unpaid receivables at GFI will also pose a problem.

Ways to improve business creditworthiness

There are several ways in which entrepreneurs can improve their creditworthiness. What is one of them? This will include:

  • A solid business plan – the bank often assesses the entrepreneur’s idea for the company’s development, if it considers it reliable, there is a greater chance of granting a loan.
  • Credit regulation and resignation from credit cards.
  • Employment of employees (most often associated with a larger scale of business).

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