Did you hear the one about the entrepreneur who got his bond approved without a hitch? No? That’s because this is rarely ever the case for entrepreneurs and self-employed individuals. Ironically, entrepreneurs’ permanent employees have an easier, far less suspicion-filled experience when doing a mortgage application.
But there is a private bank in the market currently that says it is targeting entrepreneurs exclusively. And yes, it is willing to fund self-employed individuals with mortgages.
Tom Stilwell, head of Private Bank at Mercantile Bank, a bank catering exclusively to entrepreneurs, describes this client base as “a different animal” from salaried customers. Access to finance for property or other business requirements is key to ensuring entrepreneurs grow, Stilwell believes.
“When we launched the private bank in 2014, we got statistics from bond originators, ooba and BetterLife, which showed that only between 30% and 50% of self-employed applicants got their bonds approved,” he says, noting that a reason for this has less to do with perceived risk and more to do with the systems in place at the major commercial banks.
“Many banks place their home finance business in their retail divisions. This works fine for salaried applicants, but the scorecard approach does not work as well for entrepreneurs who often have multiple sources of income, such as various contracts and rental.”
He continues by saying that the process between the application and documents reaching the bank and receiving an answer on whether the bond has been approved or declined, takes far too long. This, he says, can result in the applicant becoming very anxious and losing the deal.
Stilwell says his bank can do better.
“We can give applicants a ‘yes’ or a ‘no’ within 24 hours if we have all the necessary documents,” he says, noting that this quick turnaround and his bank’s willingness to seriously consider self-employed applicants is a big reason for clients moving their personal and business accounts to the bank. “Our interest rates are consistent with the industry but I believe our loan to value ratios are very favourable.”
Last year HomeTimes wrote about Absa’s policy for self-employed applicants requiring at least 15% equity before the bank would even consider their application. Stilwell says he has clients who have been funded 100%, though they do prefer clients to have equity set aside.
“The home loans we have on our books currently start from R600,000 all the way up to R22m,” he says. “But we’re focusing on getting more of the R2m to R4m market as this gives the loan book some meat.”
Bad credit and total credit loss are very low, says Stilwell, who notes that the bank’s lending practices are actually still considered conservative. “It’s not that we like risk, we just don’t believe entrepreneurs are ‘risky’,” he says. “We have a saying: we ‘back the jockey’. This means we look at the business behind the applicant and all of his sources of income.”
Requirements for funding entrepreneurs
Applicants need to involved in a trading enterprise
Income should be R500,000 or more per year
The business needs to be a going concern for two or more years
Applicants may be sole proprietors or other business structures