Since most people are employed in the Czech Republic, it is quite clear that employees are the ones who are most interested in borrowing. However, the entrepreneurs segment cannot be forgotten either. This is the segment of self-employed persons. These are referred to as self-employed and here it is no exception that they can apply for loans. Both banks and non-banking companies as well as the P2P segment. Sometimes, however, there are situations in which the application encounters. What problems can a self-employed person have when applying for a loan? These are the most common.
Short time of business and not submitted tax return
It may be a problem for self-employed people to apply for money for a short time only. The classic business year is the same for most businessmen as the calendar year. And the tax return is then filed within three months of its termination. Those who do business for a shorter period of time have no tax return yet. And that means he has no way of proving that he is doing well and that he has sufficient income. In most cases, a trader must wait for the very end of the year, then submit the return ideally as soon as possible and can present the document as soon as he has available the document to his request for money.
While there may be loans for start-ups where the tax return does not have to be documented, it is necessary to add a number of other things, including a business plan and other documents. Many entrepreneurs are thus more likely to wait. It’s easier than wasting your time defending your business. Especially if it is specific in some way.
Short time of business and low income on tax return
The classic tax return is not filed for individual months. It is served throughout the year. Many money providers look only at one single box indicating the amount of income. This number is divided by twelve and the average monthly wage will be generated. It is necessary to say that those who do business all year long, this data fits easily. It is worse with those self-employed who do not do business all year long. These people do business only briefly, for example only half a year. Many money providers still divide the resulting figure by twelve, resulting in a relatively low monthly income. If the actual number of months is taken into account, the income can be interesting and above average. Often strong arguments are needed to assess tax returns correctly. But sometimes, unfortunately, it may not help either. Among other things, because a short business period can be taken as a risk where no one knows what will happen in the future.
High expenditure lump sums
Those self-employed who do not have sufficiently high real expenditure may use so-called flat-rate expenditure. This is a procedure where they deduct the percentages set for them from their turnover. This will reduce their tax base and thus their income tax. This is convenient for everyone, as they simply pay lower taxes. However, the problem arises when applying for a loan. Reducing the tax base in the form of a lump sum leads to the consequent reduction in paper profits of the given entrepreneur. In fact, it can even be equal to its turnover, but due to the flat rate is only a few tens of percent on the tax return. At that moment, the entrepreneur is seen as a low-income person and the loan can be refused. The solution is to find a provider that looks at other things or omit the flat rate and use actual expenses in the next return. However, not only income tax will be increased, but also social and health insurance contributions. Which is not advantageous at all.
Insufficient tax return
The tax return shows how much the entrepreneur earned for the previous business year and in most cases also for the calendar year. If it demands mid-year or even later, it does not have to say anything about its current financial situation. Therefore, he may come across in the direction that he will have to deliver something other than his tax return. Very often these may be invoices for the last months. These will help to prove that his turnover is sufficient in the given year, which will also be reflected in his current income. Of course, this is a possible delay and unnecessary administration, but the result may be that the request for money will eventually be approved.
This problem may concern, for example, seasonal work. That is, craftsmen who work outside. In winter they usually do not have much work, while in summer they have more than enough. They will cover the whole year with their income without any problems, as evidenced by their tax return. It may be worse at the moment when they are to submit invoices. If they apply in the summer, this is no problem, as they exhibit them on a conveyor belt, even on large sums. When they ask for money during the winter, they may have only a few invoices. This can be a demonstration of risk for money providers. The solution is to request just at the time when it is doing best. This is easy to convince the bank or non-bank company of the turnover.
This can also be a risk for entrepreneurs. If things are going well now, this does not necessarily mean they will be doing tomorrow too. This is a private business problem. While it is true that the risks are also in the case of classic employment relationships, here it is not possible to forget the notice periods, possible severance pay, or perhaps unemployment benefits. As a result, even several problem months can be managed quite easily. However, the risk for entrepreneurs is higher and this should be taken into account. And the providers of funds think about it. What does it lead to? That business income demand higher than the employee’s. Even in this way some try to cover possible risks.