Your best year yet, averaged away by the lender

Things are going great, but there's a particular frustration that comes with running a business that's growing.

Everything says you're doing better. Turnover up. Profit up. The pipeline is full. Then a lender looks at your last two or three years accounts and blends them into an average. It might be over a year since you filed your latest accounts, so these are old numbers.

It's one of the quietest ways good business owners get restricted on borrowing. Most never realise it's happening.

A lot of lenders assess director and self-employed income by averaging two or three years of profit. For a flat business, fair enough. For a growing one, it's punishing. Your strong recent year gets dragged down by weaker older ones, and the figure they lend against reflects a business you've already outgrown.

The good news: not every lender works this way. Some will look at your latest year on its own where the trajectory backs it up. Knowing which, and what they'll want to see, is usually the whole game.

An example. Two business owners wanted to raise their mortgage from around £300k to £900k both of whom had busy, successful and growing businesses. Their profits had jumped in the most recent year. A standard approach would have averaged that strong year against weaker ones and cut the borrowing accordingly. We worked with a lender willing to assess it on the latest year's profit share, supported by their accountant. It completed.

The growth was real, established and the standard method was not going to help them.

With access to the whole of the market we can navigate you to the best possible lender for your needs, whether that’s on the high street, a smaller regional Building Society who can be flexible, a specialist lender or a Private Bank.

So if your business is growing and a mortgage is on the horizon, ask a lender one thing early: “Will you average my last few years, or can you use my most recent year?” The answer tells you very quickly whether they fit a business like yours.

Growth should open doors. Too often the way income gets assessed quietly closes them. It doesn't have to.

If you've had a strong year and you're wondering whether your borrowing options have kept pace, that's exactly the kind of conversation worth having before you apply anywhere.

Your home is at risk if you do not keep up repayments on a mortgage or other loan secured on it.