The lender will verify the proof of income:

• The last three payslips and the P60, if employed.
• Two or three years of audited accounts, if self-employed.

The lender would also verify other documents that prove the borrowers identity – the passport and proof of address.

The lender will arrange a property valuation to check the property’s worth. Many lenders offer up to 90 or even 95 per cent of the valuation, if they are sure of the borrower’s ability to repay. This is called ‘loan to value’ or LTV. Maximum LTV rates typically reduce for properties above a certain value – these thresholds vary between lenders.

Mortgage lenders use different rules to work out how much they can lend. For example, some of the business rules can be:

• Single Applicant – Three times the borrowers annual salary – sometimes more
• Joint Applicants – Two and a half times the joint salaries, or three times the  higher salary plus the lower salary.

Lenders base their loans on the borrower’s gross income before tax. This can sometimes include regular overtime or commission. They also look at the regular outgoings (expenses), like:

• Payments on other loans
• Service charges on the property
• School fees for children

If your bank account regularly goes over your arranged overdraft limit, you will have to pay extra interest and charges. Your bank could also cancel your overdraft limit or refuse to renew it when your agreement runs out. If you lose control of your bank account, it can become very difficult to manage your business and household finances.

Unpaid cheques, direct debits and standing orders will make your debt problem worse and any money paid into your bank account may be taken up by interest and bank charges instead of covering payments you need to make. You may find it easier to change your overdraft into a loan. Remember, you may lose your overdraft as the bank will often make it a condition of the loan that you keep your current account in credit. You will also be committed to making payments towards the loan each month. Make sure you can afford this and make sure the interest rate on your new loan is no higher than the overdraft rate was.

Leases for hiring equipment may be priority or secondary debts, depending on your circumstances.

Check the agreement very carefully to see whether:

• you have the right to keep the equipment at the end of the lease; and

• if you will have to pay for the equipment for all of the period set out in the agreement whether you return it or not.

Under lease-hire agreements, the company which supplied the goods will always own the goods and will be responsible for repairs. Under lease-purchase agreements, if you pay a fee at the end of the leasing period, you will then own the equipment. Check with the leasing company if they will reduce your debt if you return the equipment. If you have the right to keep the equipment, or if you need the equipment to keep trading, you should treat the missed payments as a priority debt.

If the council have tried to use bailiffs, and you have still not paid your business rates in full, they may apply to the magistrates’ court for an order for you to be sent to prison (‘committal’).If you have not paid because you don’t have enough money, the court is not likely to send you to prison. The court would have to show either:

• you have deliberately refused to pay (known as ‘wilful refusal’); or

• you could afford to pay but did not (known as ‘culpable neglect’).

You must go to the hearing and show the court your business and household budget to explain why you have not been able to pay.Take along any evidence to show you have tried to pay what you could afford.

If you are on a low income, you may be able to claim Working Tax Credit on top of your wages. Many self-employed people do not realise they can claim tax credits.You can qualify in the following ways.

• If you (or your partner) are employed or self-employed for more than 16 hours a week and are bringing up one child or more. If you qualify for this reason, the tax credit can also help with childcare costs in certain circumstances.

• If you (or your partner) are employed or self-employed for more than 16 hours a week and have a disability that puts you at a disadvantage in getting a job.

• If you or your partner started work (including self-employed work) in the last three months and are:

– over 25 and work for 30 hours or more a week; or

– over 50 and work for 16 hours or more.

In both cases, you must have received Income Support, Jobseeker’s Allowance or Incapacity Benefit within the last six months.

Working Tax Credit will usually be paid into your bank account, and is dealt with by HM Revenue & Customs.

If someone owes you money and they are not paying you, you should speak to them to try to work out a solution.

This may include:

• arranging for them to pay you in instalments; or

• coming to an agreement if they are not paying the debt because they have a dispute with you about the invoice or the goods or services they have bought. If the person is only disputing part of an invoice, you should ask them to pay the part they are not disputing immediately and then sort out the rest separately. Be careful not to harass the person who owes you.

If a business owes you money, you may have the right to claim statutory interest (interest at a set rate) from them. If you cannot recover the debt by speaking to the person or company direct, you may be able to take court action (either by yourself or through a solicitor) or use a debt-collection agency to get the money back. You will need to balance the costs of taking any formal action against how much you would get back, particularly if the company has a reason for not paying or cannot afford to pay. Make sure you have a good

credit-control system (a system for managing money owed to your business) as this can considerably  reduce the problems of late payment and bad debts.