Tina McKenzie
FSB Chair, Policy and Advocacy
People who decide to take a leap into the unknown by embracing entrepreneurship are taking on many risks – not least that of no longer being able to rely on a secure income.
This has consequences for entrepreneurs’ personal finances. Income volatility adds additional barriers to accessing finance products such as mortgages and external finance for their business. This can often be due to not being able to verify past income, or to demonstrate a regular future income, with lenders concerned over the ability of borrowers to afford repayments.
Income volatility also affects levels of home ownership among entrepreneurs. The dream of owning your own home is firmly entrenched in our national culture, but it should not be a privilege reserved for those in conventional employment. However, as this report shows, entrepreneurs face disproportionate barriers to accessing mortgages. From higher rates and premiums, and a greater amount of information required, there is not only a lender bias against entrepreneurs, but a widespread culture of risk aversion amongst lenders that has not kept up with the times or taken into consideration the nature of entrepreneurship.
The number of self-employed people fell sharply following the pandemic; as the recovery in self-employment levels gathers pace, anyone choosing the path of entrepreneurship and being their own boss should not be deterred from doing so by the prospect of greater difficulty in accessing a mortgage or securing funding for their business. As the Government develops its Small Business Strategy for publication later this year, it must cater to the needs of the self-employed.
Entrepreneurs, and their fledgling businesses, face numerous challenges on the road to profitable trading. The impact of their employment status on their ability to get a
mortgage, or access other forms of personal finance, should be minimised, to encourage more people to take the leap without worrying that they will be locked out of common financial milestones as a result. Getting this right will enable self-employed people and entrepreneurs to do what they do best – innovate, adapt, and create. By solving the finance conundrum too many entrepreneurs and self-employed people find themselves in, we can help to unlock the growth we need to get the economy on track.