As I’ve written several times, I’m constantly amazed at the roadblocks thrown up in the path of entrepreneurs in America – supposedly the birthplace of the self-starter. If it’s not health insurance – my favorite bugaboo – it’s something else. Just recently I learned about one more stumbling block:
Friends of my relatives have this story to tell. They live in the northeast, and they have grown tired of the pressure of daily life in a crowded metropolitan area. They have one child with another on the way, and the same concerns about the cost of living – education, food, commutes, etc. – bore down on them. For months they have been preparing to move to another state where they planned to open their own business, the same business they currently run in their city – they have a good business that has been a profitable living for years. They currently own a house which they plan to keep and rent out. They also own another property which is rented out. They have a solid business with a good history of earning income and a solid net worth.
I don’t know them well. I’ve only met them a couple of times. As far as I know, though, they are careful, prudent, and not overextended. They had all the details worked out about their business plan for their new location. They found a house, applied for a mortgage (for which they had a more than adequate cash down payment, even though they were not selling their current properties). The mortgage was denied. The only reason given is that they are self-employed. Even though they’ve been successfully self-employed for years, they will be newly self-employed in their new state, so there’s no income history there. They are devastated, depressed, and feeling trapped. For now, they are resigned to staying where they are. They aren’t willing – as we were – to rent.
The system pushes back against people who don’t conform to a corporate ideal: the worker for a big company who has a “safe” job. I can’t see why someone with a track record of years of self-employment income would be deemed a mortgage risk, but they are. I imagine – although I’ll put it to the test soon enough – that I’d be more likely to get a mortgage as an employee of a big corporation than they would be as far more successful entrepreneurs. I’m sure if I work in the financial services industry it would seem like a better job with a “secure” income – even after Lehman, Citigroup, AIG and all of the other disasters of the past year. I would also be willing to bet that I’d have an easier time getting a mortgage after working for a corporation for 3 months than I would after working as an independent consultant for two years. Why?
I know there are reasons for these types of barriers. Banks are – and definitely should be – able to set their own risk comfort level. I’d hate to see too much government control over banks’ ability to loan – or not loan – for riskier groups. Then again, that was the whole purpose of Fannie Mae – for that quasi-governmental entity to absorb some of the risk of lending from private companies.
This story is an anecdote, and I don’t have all of the facts. Nonetheless, it does demonstrate that there are challenges on top of challenges for someone who wants to strike out on their own: heavier tax burdens (self-employment tax), discrimination against “non-safe” or “non-stable” self-employment income and the difficulty of obtaining health insurance for a self-employed individual. As plonkee commented on a recent post here:
I’m surprised anyone that’s single is self-employed in the States because of the healthcare / insurance issue. It’s notable that most or all of the Yank pro-bloggers are married, and the majority of them are married to people who work in the public sector (school teacher, crime lab scientist,military, etc). [link]
That includes any single-income family like mine, too, not just single people. People still do take the leap to become successful on their own, but as plonkee points out, it’s a lot easier when that self-employment income is backed up by a spouse with a “real” or “safe” job. I wonder how many families in America have a parent who would love to launch their own business, but shy away in fear of the consequences. I know that’s what risk means, and that some people take that risk. But it’s a shame that home ownership and health insurance are the things those people risk losing, because for some of us, that’s too much to lose.