Despite significant growth in the UK gig economy over recent years, new research suggests that the mainstream banking sector has failed to keep up with the fast pace of change, as one in five self-employed warn that difficulties obtaining bank finance could force them back into full time employment.
According to a survey of self-employed professionals and directors from across the UK carried out by the Federation of Small Businesses (FSB) in partnership with specialist lender Together, 88 per cent of self-employed workers said that high street lenders need to make finance more accessible for the self-employed, while 78 per cent called for the mainstream banks to change the way they classify the risk of providing a mortgage for someone who is self-employed.
Worryingly, 61 per cent believe the self-employed are unfairly disadvantaged by the high street banks, while one in five (19 per cent) said that difficulties in obtaining finance from traditional lenders could force them back into full-time employment.
In addition, a significant 79 per cent said the mortgage application process is more difficult for the self-employed than for people in full-time employment, with more than two thirds confirming that ‘proving their income’ was the most challenging part of the mortgage approval process. Sole traders, consultants and self-employed directors of limited companies are among those who feel unfairly disadvantaged by high street lenders when applying for a mortgage or loan.
Pete Ball, personal finance CEO at Together, said: “The UK gig economy is booming, as workers up and down the country are drawn to the freedom flexibility and potential rewards of becoming self-employed. However, despite the Government, big businesses and employers supporting this growing trend, unfortunately the mainstream banking sector has failed to keep up with the pace of change in this important segment of the economy. As a result, the self-employed often find it much harder to obtain a mortgage or loan than someone in full time employment, as the research shows.
“Some of the biggest issues the self-employed face when applying for finance include having a variable or unpredictable income, a short trading history or difficulties in verifying their income, which can immediately result in a ‘computer says no’ response from many mainstream banks.
“This is because so many lenders are too dependent on risk classifications which are seriously outdated and simply do not reflect the modern dynamics of the evolving UK workforce. The fact that one in five self-employed workers are reconsidering their employment options as a result of this issue just shows that the current system isn’t working. It also suggests that the lack of access to finance could curb entrepreneurship which is something we should be celebrating and encouraging.
“If you are self-employed and finding it difficult to borrow, talk to specialist finance providers that will take a more individual approach, as you’ll find that whilst requirements vary with different lenders, there are tailored products out there, so don’t be put off at the first hurdle.”
Dave Stallon, Commercial Director of FSB, said: “It’s concerning that hard-working, entrepreneurial people who have decided to go it alone say they will be forced back to work for someone else, for the simple reason that they may not be able to access finance from many banks.
“There are specialist finance providers that cater specifically for the self-employed, which provides a financial lifeline for many, but we’d want to see easier access across the board and given the continuing growth in the numbers classed as self-employed, it’s a case of the sooner the better.”