Need for self-employed financing on the rise

Publication Date: Tuesday, 4 March 2025
This article originally appeared in Australian Broker.

Alternative lenders step in as traditional banks remain cautious

The demand for self-employed financing continues to gain traction in Australia as traditional banks remain cautious about lending to individuals without a steady paycheck. Meanwhile, more and more Australians appear to be making the decision to go it alone, working for themselves. 

This discrepancy has created added opportunities for alternative lenders and brokers alike looking to diversify their client rosters. 

“Self-employed [financing] is an underserved market and a real opportunity, ” Tony MacRae, chief commercial officer at Bluestone Home Loans, told Australian Broker. 

“It’s the biggest sector that we lend to,” he said. 

McRae estimated that roughly 60% of Bluestone’s home loan lending is to individuals who fall under the self-employed umbrella, which often requires alternative documents, or income verifications, as opposed to a standard employer pay slip. The hassle may cause some banks to shy away from the whole process, while others – under increased regulatory scrutiny – viewed self-employed individuals as too risky. 

“Banks will do it. But they will ask for an abundance of information and make it cumbersome and complex, both for the broker and the borrower, in most circumstances,” MacRae said. 

That means extended timelines for approvals, leaving both brokers and borrowers waiting longer for necessary funding. 

“I think, also, it’s really understanding how self-employed income [is generated],” said Chris Meaker, director, head of sales and distribution at non-bank lender Brighten. “A lot of the traditional banks out there don’t have the flexibility to help customers who are self-employed. Most of the banks want to see full, two-year financials as income proof. Whereas, at [a non-bank like] Brighten, we’re still highly regulated, but we need to potentially see less income proof.”

Less documentation, more flexible in terms of which documents they require and faster turnaround times generally create a more user-friendly experience than traditional banks. 

“That’s one of the biggest reasons why customers go to a non-bank lender,” Meaker said. 

How it began

Australia’s large self-employed population and heightened regulatory scrutiny at banks following the Global Financial Crisis are both driving the growth in self-employed financing. 

More than 2 million Aussies are classified as self-employed, according to the World Bank. While there is little data to suggest that this number is increasing, market experts said it’s largely anecdotal. Hence the greater need for specialty lending amongst self-employed individuals Down Under. 

“From a business point of view, our self-employed lending book is growing,” said Meaker. “We’re seeing a lot of self-employed customers coming through. It may also be that there’s more mainstream-bank lenders who are saying no, and that’s why [borrowers] are falling into the non-bank space, where we can specialize and help those self-employed customers.”

Brighten recently joined Mortgage Choice‘s lender panel, in response to the growing need for self-employed financing options. 

“Australia has always been very big for entrepreneurs and self-employed [individuals], so there is a big market,” Meaker said. “And more customers are looking to be their own boss. So having a product, which is designed for self-employed [people], really sort of helps customers in the field.”

Chris Paterson, general manager distribution at non-bank lender Resimac, agreed. “We see more Australians wanting a flexible lifestyle approach,” he said. “So starting their own businesses and being self-employed. We have a high percentage of customers who are self-employed.”

The growing need for self-employed financing is also happening in the commercial space, according to Matthew Porch, head of distribution at Aquamore Finance. His firm offers alternative lending to businesses, including entrepreneurs. 

“We’re seeing a lot of people go out on their own now; we’re seeing a lot of self-employed [individuals] who have only just started an ABN [tax code], sort of three, four, five months ago,” Porch said. 

MacRae added: “I think, really, the tipping point was probably COVID[-19], and more people chose to change their lifestyles, change their [life] balance, and earn [income] in a different way. And that’s just flowed on as we’ve as we’ve come out of that whole environment.” 

What brokers need to know

While brokers and borrowers alike might experience a relatively faster and easier experience by way of a non-bank lender, Meaker said it’s still important to note that there are things to remember. 

“It’s not to say that [non-banks] don’t have regulations,” he said. “It’s just that, for example, we would accept an accountant’s letter to confirm income. We might ask for the most recent bank statements Whereas a bank would want to see two years for financial history and your tax returns. So there’s a lot more flexibility with non-bank lending, and that’s why we’re able to say yes to more customers than the banks.”

Paterson also pointed out that self-employed borrowers might be interested in taking out a loan for business purposes. 

 “So if the borrower is refinancing their owner-occupied property, or investment property and wants to put some funds towards their business, we will allow cash out to support that, whereas traditional banks may not,” he said. 

Porch added that understanding the complexity of financing for self-employed individuals will help brokers increase their skill sets. 

“Good brokers are very, very good at understanding how long borrowers were employed by someone else for. The brokers understand their experience,” Porch said. “And it makes a lot of these lending transactions a no-brainer. 

“The banks will have a policy that you have to have been training for two years as self-employed before they’ll even consider you for any form of commercial debt, whereas [Aquamore] will look at it holistically and ask the right questions,” he said. “And a strong partnership with the broker is very important in this respect, so that you can say to them, ‘Find out how long they’ve been in the industry for. Find out what their plans are. And maybe get yourself a cash-flow forecast, or a business plan.’ When the broker presents that to us in the right manner, nine times out of 10, we’ll be in a position to look upon the [application] favourably.”