Common Traps for the Self Employed

Many people who are self employed struggle with the financial management aspect of running their own business. Harry Pontikis has been running seminars for the self employed for over 9 years and has identified 8 common financial headings which cause them the most hardship and often leads their profitable businesses to unnecessarily difficult times.

1. No emergency cash reserves

  • The worst time to approach a lender for money is when you need it
  • Therefore, the best time to apply for a loan is when you don’t need it.
  • This is done by attaching a Line of Credit onto equity and leaving it as reserves

2. Paying commercial rates

  • If a loan is secured by residential property, you shouldn’t need to pay commercial rates

3. Starting projects with own funds and then applying for finance

  • Lenders will not consider a development or construction project which has already begun.
  • This is because it is no longer considered land and can’t be valued as a home;

4. Fixing rates and limiting ability to pay off loans

  • You need to know when to fix your interest rates and when to leave them variable.
  • Trying to preempt the movement of interest rates is not a good reason to fix your interest rates.Limiting your exposure and ‘hedging your bets’ may be a good reason to fix your interest rates.
  • Fixing your interest rates and then refinancing to access more equity or because your situation has changed can be an expensive exercise.
  • Good planning is necessary regarding your future financial needs

5. Failing to complete tax returns on time

  • Not having financials to show a lender when borrowing money may lead to higher interest rates and more fees
  • Always better to have your tax returns completed and up to date

6. Allowing a default to be registered against your name on the Credit Register

  • Defaults can cause major issues with obtaining any sort of credit – whether they are loans, utilities, mobile phones, etc
  • Not worth allowing one to be registered against your name as it remains for up to 7 years

7. Growing too fast

  • Many businesses face the greatest challenges when times are good – not having strict financial disciplines in place may cause excesses in spending and cash flow often causes a business undue hardships.
  • Lenders have many products to help businesses with their cash flow challenges. Including lending money without requiring property – often known as invoice or cash flow finance.

8. Giving too much business to one lender

  • A misconception that a lender is likely to treat a self employed person better if all their business is with them.
  • Better to spread the risk across multiple lenders
  • Competition with lenders is a healthy way to get great rates and loans

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