An entrepreneur who plans to buy real estate on credit should remember about several important matters. The purpose of the property is an issue that determines the conditions and course of the loan process.
The vast majority of banks will want to grant a company loan secured by a mortgage if the property is used for business purposes. On the other hand, an entrepreneur planning to purchase a property or its construction for private purposes may use a standard mortgage and cash loan.
Entrepreneur loan - when cash and when mortgage?
If the basic source of entrepreneurial income is business, banks calculating creditworthiness pay attention to many factors directly related to the running and finances of the company.
You can finance the purchase of a flat or a house, or a construction investment with a mortgage or cash loan. The latter can be considered when you need a relatively small amount to complete the project and you have a larger share of the funds allocated for this purpose. From the point of view of the total cost of the loan and the interest rate, the mortgage will probably be cheaper, and it is usually the more favorable solution in such situations.
When you run a business, you have the same chance of getting a mortgage for private purposes as a client on a contract of employment. However, banks will pay attention to quite different parameters than those of the contracted person. What will he check and what documents will the bank require from you? How will analysts calculate your credit standing if your own business is your main source of income? Can company commitments affect your credit standing?
When to apply for a business loan for real estate?
The seniority of doing business on the market determines when you can apply for a loan. The loan offer of many banks will be available to you provided that you have been on the market for at least 12 months.
Some banks set even stricter rules and require a minimum 2-year experience. You can also find institutions that apply less restrictive limits, but only to borrowers in freelancers and those who have switched to self-employment and do the same work for their current employer.
Legal form and method of taxing business activity and creditworthiness
One of the first and at the same time the biggest challenges that you have to face when starting your own business is choosing the legal form of business. It affects not only the aspects related to the functioning of the company, but also the creditworthiness of the entrepreneur when applying for a loan.
In the case of individual business operations, the bank will only consider your private and corporate obligations; however, if you operate as part of a company, its corporate loans, if any, will also be included in the credibility test.
How does the bank calculate creditworthiness?
In the context of calculating creditworthiness, the way you tax your business is even more important. Banks have very different approaches to entrepreneurs settling on the basis of KPiR and people who have chosen a lump sum or tax card. While for each of these forms, stability and regularity of income is of key importance, the calculation of income looks quite different. If you follow general principles or a flat tax you may feel really privileged if you use one of the other methods - it may be a bit harder to get a loan.
Taxation on general principles
The tax scale is a simple form of taxation often used by sole proprietorships and small companies. Banks also like it because it allows them to easily assess the real profitability of a given business. In this case, they calculate income by deducting tax deductible costs from revenues. When examining creditworthiness, they usually take into account the average net income from the last 12 calendar months. Some institutions take into account the net income shown in the last PIT declaration, and some compare the results from the current and previous year and use a lower value.
In this case, banks also do not encounter problems when calculating creditworthiness. Your income is the difference between the revenues they earn and the costs they earn. Compared to the general rules, the difference is that a uniform 19% tax rate is used.