Maeve Ward is director of commercial operations at Central Trust
Self-employment has, until recently, been an active choice for adults in the UK. Fed up with working for ‘the man’? Want to set-up your own business and run it just how you want to? Then become self-employed. In the main, people have worked for themselves because that’s what they wanted to do.
However, over the past decade and especially within the last five years, this picture has changed. Many people find themselves self-employed because that’s the reality now.
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For example, 10 years ago no one had heard of the gig economy but now, unless there is some unlikely government economic intervention, it appears to be here to stay.
What has also changed has been the levels of income the self-employed have earned. According to the most recent results from an ongoing and authoritative study into the plight of the self-employed from the London School of Economics (LSE) and the Centre for Economic Performance (CEP), the self-employed have been impacted the hardest by COVID-19.
The LSE-CEP survey found that 39% of the self-employed report having less work in August 2021 than they would usually have at this time of the year.
While the figure is an improvement from both the levels of January 2021 (62%,) and August 2020 (58%), 72% attribute the cause of reduced work to COVID-19 and the subsequent restrictions.
However, early indicators are that this situation is improving for the self-employed, with many reporting an improvement in income levels, and for some, a return to pre-COVID levels.
The UK economy as a whole is expected to grow by 4.7% in 2022 and the self-employed sector will be front and centre of this predicted growth.
Despite a rapidly improving situation for many self-employed, when it comes to applying to borrow money, a self-employed individual will need to show their SA302.
This is a statement given by HMRC that provides evidence of one’s earnings. It is effectively the taxman’s presentation of an individual’s Income Tax calculation for that given tax year.
Because of COVID, the latest SA302 for some may show significantly lower earnings to that of 2019/2020 even if, as in many cases, the business has since returned to pre-COVID levels of earnings and performance.
The problem is that most mainstream lenders operating in the market will work from the most recent SA302 and not take into consideration what went on before and so the loan amount they can offer will be lower than needed or they may not even accept the case at all.
The challenge, therefore, is not evidencing the stability of the business but finding a lender to take a more holistic view, looking at the business performance before and after the pandemic.
Sadly, this is where lenders with automated decision-making systems will fall short, as there is no human to intervene and conduct a reasoned analysis of the self-employed individual’s business.
At Central Trust, however, we feel that the self-employed are not being given a fair hearing. We like to take a more reasoned approach to an application by looking at a self-employed person’s circumstances and income history.
For example, we will lend on the 2019/2020 SA302, subject to three most recent bank statements and a projection from an accountant which supports that income has returned and the business is stable.
This means the self-employed applicant will be assessed using a more common-sense approach and may well be able to achieve their borrowing requirements.
The self-employed have been hit hardest during the pandemic and it’s important that good applicants are not unnecessarily penalised further.
Instead, we as a sector need to help them attain their borrowing requirements, whether they’re looking to consolidate debt, finance home improvements or cash-raising for another purpose in a responsible and appropriate manner. Central Trust for one is playing its part and treating the self-employed fairly.