Mortgage for entrepreneurs and s.r.o. owners - tips from practice

Are you in business and looking to finance your own home or investment property? Banks are stricter on business income and often want more documents than they do for employees. What do they really look for, how do they differ, and why will your choice of approach and institution significantly affect your chances of approval? Get an overview of how to prepare and not block creditworthiness due to "too good" optimization.

Financing the purchase of property is a challenge for entrepreneurs - whether it is a mortgage for their own home, an investment property or an investment loan for a company-owned property that can strengthen the position of the business and secure its future development.

However, banks treat business income differently from employee income. They assess applications individually and often require more documentation and evidence of income stability.

Barbora Stodůlková from the financial advisory company Explicit Invest has written tips on how to prepare for a mortgage, what to look out for and how a quality accountant and financial advisor can make your path to your own or business property much easier.

Why is a mortgage a challenge for entrepreneurs?

• Banks are interested in stability and predictability of income. Both are more difficult for entrepreneurs than for salaried employees.
• Entrepreneurs often optimise their tax returns, which formally reduces their reported profits (and therefore reduces their creditworthiness to the bank).
• Most entrepreneurs expect that all they need to do is visit their home bank, but the reality is that they need to compare all the banks in the market before applying.
• A different bank will be suitable for a self-employed person on a flat-rate tax scheme than one that keeps tax records and counts real costs.

Key criteria for banks when assessing an entrepreneur

An essential step before acquiring a property is not only the plan to buy a specific property, but above all the calculation of creditworthiness, i.e. the applicant's ability to repay the mortgage later.

It is generally recommended to consult the financial plan for the purchase of the property at least 6 months in advance, ideally more than a year, given that banks mainly assess past income for entrepreneurs.

At the same time:

• The "tax base" (net profit) is decisive for the calculation of the possible mortgage amount - it can be strongly influenced by optimization.
• Important are the tax returns filed and the length of the business (ideally 2 years for LLCs, 6 months is the minimum for self-employed, but 12 months for most banks).
• Supplementary income (e.g. rent, FTE) can help, but must be proven.

Practical cases

1) Self-employed in IT with a lump sum expense allowance

• Model case: Mr. Korunka works as a programmer on an IČO and for tax purposes uses a flat-rate expenditure, i.e. 60% of income. His tax base is low due to the flat-rate expenses.
• Tip for clients. Unicredit, Komerční banka and mBank are taking a similar approach this year.

2) Self-employed with real expenses

• Model case: Mrs. Rich is a consultant and keeps tax records (simplified accounting) with real expenses - she proves her expenses with invoices, receipts, etc.
• Tip for clients. After comparing all the banks in the market, a financial advisor will give the bank an idea of the maximum mortgage amount it can obtain from each institution.

3) Self-employed in the flat-rate tax scheme

• Model case: Mr. Reasonable pays a fixed lump sum to the government each month (including tax, social security and health insurance) and does not file a traditional tax return.
• What the bank solves: Some banks have so far had trouble accepting this scheme - income information is limited, they lack a traditional tax return to base it on.
• Tip for clients: before applying for a loan, it is necessary to check with a specialist which bank to approach and be prepared to provide alternative documents (e.g. 3-12 months of bank statements, contracts with customers). ČSOB mortgage bank, Unicredit or mBank are the best ones for alternative assessment of the flat tax scheme. A skilled advisor will advise the client on how to increase the income for recognition of the last 3 months in the account.

4) Owner of an LLC with employment in his own business

• Model case: Mrs. Penízková is the managing director and an employee of her own company, she takes a regular salary.
• Tip for clients.

5) Owner of an LLC without employment

• Model case: Mr. Saving owns an LLC but is not employed by it, he pays himself a share of the profits or remuneration for the performance of his duties.
• Tip for clients: Česká spořitelna, Raiffeisenbank, ČSOB and Raiffeisen stavební spořitelna can accept income from profits (both distributed and undistributed in certain cases). It is a good idea to prepare for this with your financial advisor before filing your LLC tax return.

The role of the accountant, the taxman and the financial adviser

Good bookkeeping and proper documentation will make dealing with the bank much easier. It is a bonus if the tax advisor aligns the tax optimization process with the path to building wealth.

In cooperation with a financial advisor, the reported profit can then lead to the purchase of an equity or investment property. Ideally, the entire process is covered by a sound financial plan and a strategy to build wealth.

Summary and final tips

• Prepare all documents in a timely manner and consult with your accountant and financial advisor on the purchase plan.
• Keep in mind the link between tax optimization and the amount of the loan.
• Take advantage of professional services to help you organize and handle the entire process more efficiently.

And if you have your own business and don't know what to do with taxes, we are here for you. Contact us for tax return preparation for individuals or tax advice for businesses to help you set up your tax affairs correctly.

Contact information

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+420 226 224 724

info@jake-james.cz

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