Shame on You If You’re a Mortgage Professional or Landlord Denying Entrepreneurs Loans or Rentals

Why entrepreneurs are branded “riskier” and why the data that backs that up is flawed and misleading

One of the most frustrating parts of being self-employed is how lenders and landlords treat you as inherently “riskier” than someone on a steady W2 salary. You hear some version of it from mortgage brokers and landlord reps all the time.

“The data shows the self-employed default more often.”

OK. What data, exactly? Can you show us? And does it really apply to someone running a successful business with six-figure cash flow?

Why is a bank denying the entrepreneur with $500,000 in cash savings and a business that earns an average of $50,000/quarter in favor of the W2 employee with $10,000 in savings who just got hired at $150,000/year as Chief Vibes Officer at a cash-incinerating startup just 3 months ago simply because their paychecks come in neat little monthly intervals?

When you actually dig in to the data, the evidence behind this party line is far thinner… and far more distorted… than the financial industry admits or that mortgage brokers and landlords even understand themselves.

The Blurry History of Default Data

The conventional US mortgage market relies on risk models created by Fannie Mae and Freddie Mac. In the past, they’ve published studies showing that, on average, self-employed borrowers do default slightly more often than salaried borrowers. But these are enormous, wildly diverse groups of people, averaged together.

And even then, the differences are modest… often less than one percentage point across loan types.

The bigger problem is how these studies treat the self-employed as a single block. There’s no analysis of the businesses behind the entrepreneurs. There’s no analysis of the companies paying the W-2 salaries either. The startup might not even make payroll next month, and the freshly minted Chief Vibes Officer could be canned on a whim. Yet the bank doesn’t care. It won’t ask questions about the startup’s solvency… it just wants a neat stack of pay stubs and maybe an HR confirmation that, yes, the vibes are still intact!

So in the data, a freelance designer making $30,000, a family restaurant owner riding good years and bad, and an entrepreneur generating $300,000 in multinational cash flow are all coded… the exactly same way!

The researchers or actuaries aren’t parsing business models, tax-efficiency strategies, personal backgrounds, grit, ambition, or life stories. They simply group “self-employed” together and average the outcomes into a single, blunt data point labeled “higher risk.”

That’s statistical laziness at scale… and it affects millions of people. It makes innovators’ and job-creators’ lives harder than they need to be.

So yes, defaults were technically higher in aggregate… but only marginally. The picture is blurred by extreme outliers and fails to account for the massive variation in financial health, and the even wider variety of businesses and entrepreneurs, hiding inside that average.

Tax Returns and the “Low Income” Mirage

Of course, another reason self-employed borrowers are treated as riskier is the way their income is measured. Lenders rely heavily on tax returns, which show net income after deductions.

For entrepreneurs who maximize perfectly legal deductions, their reported income looks artificially low. On paper, they might appear to earn $50,000/year, when in reality their businesses generates $200,000+ in discretionary earnings. Lenders and landlords rarely bother to reconcile the two because, let’s be honest, they’re just collecting a paycheck themselves so why would they want to work any harder? But even if some enterprising broker wanted to dig in, their risk models aren’t designed to.

That creates what we could call a low income mirage where a person with ample liquid reserves and robust cash flows gets marked as “risky” because their net taxable income doesn’t meet the cutoff.

Variability Versus Predictability

Self-employment can, of course, come with income variability. Even when the long-term trend is strong, revenues can fluctuate from quarter to quarter or year to year. Financial institutions, especially in the post-2008 era, place an extraordinary premium on predictability.

A salaried employee earning $75,000 looks stable because the paycheck hits the account like clockwork, even if that employee has no savings at all. Meanwhile, an entrepreneur with $300,000 in savings or retained earnings in their business and the ability to pay a year of rent upfront is still flagged as “risky”… not because of any inability to pay, but because the income doesn’t arrive in neat uniform little packages. It’s another example of logic and common sense taking a back seat to systems rigidity.

The 2008 Shadow

This “riskier” stigma actually stems predominantly from the 08-09 subprime mortgage crisis. In the US, a large share of “stated income” or so-called “no-doc” loans… many to self-employed borrowers… turned out to be fraudulent or exaggerated. Regulators responded by tightening documentation requirements across the board with absolutely no nuance whatsoever.

The abuse was real, but the fallout has cast a long shadow that effects millions of would-be innovators and job-creators today trying to buy or refinance homes or move into new apartments with their families. Because even honest entrepreneurs were branded as suspect overnight. What began as a reaction to fraud hardened into a permanent bias. If your income is harder to verify or not dripping from the corporate faucet every 2 or 4 weeks like clockwork, you are automatically riskier on paper even if the opposite is true in reality.

The Irony of “Risk”

You’re seeing the insane paradox here.

The salaried employee who looks stable on paper may have no meaningful savings and could be one layoff away from default.

The entrepreneur, who appears “riskier” to the system, might have the cash to cover ten years of obligations without breaking a sweat.

In real-world terms, the entrepreneur could be the obviously safer bet. But because models can’t easily capture the inner workings of a business that you own, payment cycles, the strength of client contracts, churn rate, personal liquidity, retained earnings or business profit, or let alone international income… it’s the exact opposite conclusion that gets enforced and the entrepreneur is denied.

Shame on the System

So, the belief that the self-employed are riskier borrowers is less about hard evidence and more about system design. The models are simplistic, the documentation rules outdated, and the regulatory incentives skewed toward predictability over truth.

For entrepreneurs, that means fighting an uphill battle… proving financial strength to institutions that can’t (or won’t) measure it properly. The irony is extreme… the people building businesses, creating jobs, and generating substantial cash flow are penalized, while those with fragile W2 stability glide through with few questions asked.

It’s not that the data proves entrepreneurs are truly riskier. It’s that the system isn’t built to understand them, which is ironic when that system relies on entrepreneurial ambition and innovation to keep it going over the long term.