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The hard work of small business people has been behind numerous New Zealand success stories; however it can be almost impossible for our entrepreneurs to get finance, whether to buy a home or to build their business.

There are two main challenges self-employed Kiwis encounter when loan hunting: First, the burden of proof and second, a general lack of understanding from lenders.

The burden of proof
The burden of proof is different for newly self-employed people and those who have been building their business for some time.

A situation that brings to mind the chicken and the egg axiom, newly self-employed people are often hamstrung by a lack of proof: proof of income, proof of business success, and proof of commitment. Of course you can’t provide the required proof unless you can get your business off the ground, and for that, you need finance.

The best approach for newly self-employed people is to plan thoroughly. Lenders will ask themselves: Do they have the required business acumen; will he/she be in business in two years, and if not what are the implications?

You have to be ready for these types of questions. Plan for the short term, plan for the medium term, and plan for the long term. It’s absolutely vital that you can show your lender that your fledgling start-up will develop into a viable business.

For self-employed people who have a couple years experience as a small business owner, the problem isn’t lack of proof, but the costly and time consuming task of gathering it.

Often lenders will need two years financial accounts, cash-flow forecasts, your marketing plan and business plan. At this stage, it’s not uncommon for people to put their application in the too hard basket.

One option to consider in this case is low documentation loans – loans that require that you secure your finance with equity, but that don’t require a bundle of financial records.

Lack of understanding
In general, there is a real lack of understanding of just what it takes to get a small business off the ground in New Zealand: The sacrifices, the stress and the complexities of building something from the ground up.

Why? Because the majority of major lenders have never been self-employed people themselves, so it comes as little surprise that small business people and lenders can often be on very different pages.

One of the ways to tackle this lack of understanding is to talk with a lender who knows what it takes to be a small business person. They have experienced the complexities of building a business from the ground up so they are ideally placed to help you plan for the finance you need to turn your idea into a viable business.

The opportunities
Lending to small business people on the whole is all about finding a way to a solution, without requiring financial proof, which is either not available, or too costly and onerous to obtain. The trade off is the borrower must have some equity to put up, usually 20 or 30 per cent, depending on how long they have been in business.

For people who have been self-employed for more than two years, options widen, and normal lending may well be the best option for those with clear evidence of profit – their Net Profit Figure – and a clean credit history. In these cases, some lenders will lend up to 100 per cent depending on the situation.