Loans for the self-employed: Why are banks doing so?

Self-employed persons are treated by many banks as stekos and have to renounce private and business unnecessarily often on loans. Freelancers significantly improve their chances of getting a loan if they think like a bank.

Banks are being charged a lot these days. In one, however, the credit institutions are unsuspicious: If the chance for a larger profit offers, banks rarely let them pass. Many self-employed credit seekers attribute the reluctance of many banks to lend to professionals and businesses a greater risk of default and assume that they are not attractive customers for banks. As widespread as this assumption is, it is so wrong.

Credit risk is not much greater

Credit risk is not much greater

First, the risk of default among self-employed individuals who have overcome certain first-degree barriers to self-employment is not significantly greater than that of salaried employees and even civil servants (although their revenues are guaranteed by the state) many of the major credit default risks remain, such as divorce and bad budgeting).

Secondly, where there are demonstrably higher risks, banks can counteract this with an adjustment of the interest rate. This does not have to lead to usurious interest for a long time: Already a 100 basis points higher interest rate allows a significantly changed calculation. The complaints of most self-payers in the context of restrained lending are not based on a slightly higher interest rate, but on the strict and collective refusal of many banks.

If the latter does not have a greater credit default risk, this may be due to an increased administrative effort or a more difficult integration of the processes in the existing operational processes. There are several reasons that support this assumption. Thus, the loan application process at many banks has been automated to a high degree. If prospective creditors are notified of a provisional decision within a few seconds, no human employee has participated in it. Its use for loans for employees is limited to checking the payroll and, if applicable, the account statements.

The required human effort for self-employed loans is many times greater: as a rule, several tax assessments and a business evaluation must be checked. The account statements of the private account are also required. Banks with low staffing levels in the credit department may therefore be relinquishing their entire business to self-employed persons.

Lending is streamlined

Lending is streamlined

The significance of rationalization processes for lending is illustrated by another phenomenon in the industry: Even banks with otherwise strong retail business and a broad customer base outsourced lending and brokered loans to other banks. Customers notice this only at best on a note in the fine print or on the name of the contracting party.

Another reason for the restrictive attitude of many banks may be the concern about inquiries from self-payers who (objectively) fail to meet the criteria for lending. For example, start-ups often overlook the fact that, unlike employees, a monthly net income of $ 1,200 may not be enough for a loan because self-sufficiency is associated with the need for a variety of private insurance and pension benefits.

Credit intermediaries pave the way

Credit intermediaries pave the way

These assumptions are confirmed again and again in our daily practice. Banks are much more open to credit requests from self-employed clients when they are presented by us as intermediaries. Brokers perform several important tasks in the lending process. This includes in particular the pre-selection: If self-employed persons for certain reasons are not considered (too low income, no tax assessment, etc.), no application is made to a bank. From the point of view of banks, inquiries that we have checked in advance are on average “higher quality” than free inquiries.

A current example from our daily work. We have recently been able to give a self-employed customer three different loans at three different banks within seven months – with the most favorable loan the effective interest rate was below 6.00 per cent. Self-employed people should therefore not throw in the towel, but turn to mediators like us!